Internal Audit Work Research Articles

Discretion in the Governance Work of Internal Auditors: Interplay Between Institutional Complexity and Organizational Embeddedness

Discretion in the Governance Work of Internal Auditors: Interplay Between Institutional Complexity and Organizational Embeddedness

Informal Communication: A Path to Success for Internal Auditors

SUMMARY The newly issued 2024 Global Internal Audit Standards recognize the need for informal communication for the first time, highlighting the vital role of informal communication in facilitating effective information flow and building relationships between internal auditors and their stakeholders. Frequent informal communication can significantly enhance the benefits of formal reporting by helping internal auditors gain deeper knowledge of the organizational culture and dynamics, nurture mutual understanding of internal audit work, and take a comprehensive perspective on risk. Drawing upon data gathered through interviews, surveys, and audit committee charters, we find that informal communication between internal auditors and the audit committee plays a pivotal role in obtaining audit committee support and building strong relationships. However, there is a significant gap between current practice and the new guidance for informal communication. We discuss implications of the new standards and offer suggestions to improve informal communication.

Teknologi Digital Dan Transformasi Internal Audit Terhadap Perlakuan Laporan Keuangan : Studi Literatur

This article discusses the impact of digital technology on the transformation of internal audit and its implications for the treatment of financial reports. As technology advances, companies are adopting digital solutions to improve the efficiency and effectiveness of their internal audit processes. This transformation not only includes the use of new tools and technologies, but also changes the paradigm and methodology of internal audit work. Digital technology provides greater capabilities in collecting, analyzing and understanding data in real-time. Internal audit can leverage advanced analytics technology, artificial intelligence, and natural language processing to identify risks, detect anomalies, and provide deeper insights into a company's finances. With the adoption of digital technology, internal audit transformation can increase audit accuracy and thoroughness, reduce the risk of human error, and enable fraud identification more effectively. In addition, technology also facilitates the implementation of more proactive and adaptive risk-based audit practices, allowing internal audit to focus on the most critical areas and provide significant added value. However, this transformation also brings new challenges, including the need to develop new skills among auditors, manage information security risks, and ensure compliance with regulations related to data privacy and security. This article details effective implementation strategies, as well as providing views on how organizations can optimize the potential of digital technology to improve the quality of financial reporting treatment. Thus, this article aims to provide in-depth insight into the role of digital technology in the transformation of internal audit and its impact on the treatment of financial statements, identify the associated benefits and challenges, and provide guidance for companies wishing to adopt such technology effectively.

A Review on Risk-Based Audit Approach: Malaysian Public Sector’s Perspective

Purpose: This study aims to understand the Risk-Based Audit (RBA) approach, the advantages of RBA, RBA in the Malaysian public sector, and the issues and challenges inimplementing RBA in the Malaysian public sector. Design/ Methodology/ Approach: A library search and evaluation of earlier literature reviews were conducted on the topic of RBA and internal auditing that covers online and print sources, journal articles, newspaper articles, and official legal documents. Findings: RBA is a methodology that provides an independent and objective opinion to an organisation's management, determining whether the management of its risks is on acceptable levels. The strength of RBA lies in the distinct nature of this audit approach, which focuses on the business risk and factors triggering the risk and resulting in a more effective and efficient audit. Several issues and challenges were identified in the implementation of RBA, especially in Malaysia: (1) legislation requirements; (2) lack of resources; (3) limited access to data; and (4) duplication of work. Research Limitations/ Implications: The data pertaining to public sector internal audit reports are considered confidential and sensitive. This aspect placed limitations on the depth of the collected insights. This study also focused on the data obtained mainly from secondary sources, leading to results that cannot be generalised to other countries. Practical Implications: Findings from the document review and identification of current problems may offer indications to the Accountant General's Department of Malaysia (AGD) on the current usage of RBA. Therefore, subsequent actions are required to improve internal audit work. Originality/ Value: This study discussed the current state of RBA applied by the internal auditors in the Malaysian public sector. This finding may encourage future researchers to highlight the methods of integrating a comprehensive RBA that would fulfil the 3Es (effective, efficient, and economy) for the benefit of internal auditors, particularly in the Malaysian public sector. Keywords: Risk, internal audit, public sector, Accountant General's Department of Malaysia (AGD).

DID COVID-19 INCREASE THE RISK OF INTERNAL AUDITING?

For about three years now, the COVID-19 pandemic has kept the global economy on tenterhooks. Although the pandemic has now been declared "over", the consequences of this mega-example of disruptive developments are still being felt everywhere, also regarding the work of Internal Audit. In particular, the spatial and personnel distance from operational activities due to lockdown and home office raise the question of whether these serious changes in the audit environment have possibly also changed the audit risk. This paper attempts to address this question using the Audit Risk Model (ARM) and a survey of audit experts to operationalize a comparison of audit risk before and after COVID-19. The results suggest that the pandemic has significantly changed the audit environment and, moreover, is expected to increase audit risk. As a result, Internal Audit needs to react promptly to adapt its effectiveness to the increased requirements and thus be able to fulfill its responsibility as a "third line" of corporate governance in the future.

Financial Audit Method Innovation of Qinghai Energy Enterprises Based on Panel Data Regression Model

In the process of promoting the internal audit work, we can find the operation and management of the enterprise, which is affected by the internal audit work. Therefore, it can be seen that the internal audit plays an important role, and it is also a necessary link in the internal management of the enterprise. With the development of China’s current economic market and the corresponding transformation, energy enterprises are facing serious development problems in the process of operation and management. The existence of these problems is concentrated in the internal audit management, mainly because many internal auditors fail to clearly recognize the necessity of establishing a good internal audit during the development of energy enterprises, which will inevitably have a negative impact on the development of enterprises. In addition, internal audit has not been fully recognized and concerned by all leaders, so the emergence of these situations will lead to the difficulty of internal audit in playing its real role to a certain extent. Therefore, in this paper, the author will start from the energy enterprises, study the financial audit method innovation of energy enterprises in Qinghai Province based on the panel data regression model, discuss the problems faced by internal design in enterprise management, and focus on how to effectively solve this problem, hoping to provide more reference for energy enterprises to carry out financial audit in the future.

Internal audit under martial law

Introduction. In the conditions of martial law, the work of the internal audit system changes and is revised. Having analyzed the points of view of scientists and forensic specialists regarding the work of the internal audit service during the war, which determined the purpose of the paper. The purpose of the paper is to consider the possibilities of internal audit during martial law, its purpose, functions and tasks during this period. Results. During the writing of the paper, general logical methods of scientific research were used: observation, analysis and synthesis, theoretical generalization. It has been proved that the control function of audit during war is not as important as before war. The advisory function of the internal audit becomes the main one during the war, it will contribute to the preservation of business and the reduction of enterprise risks. It is proposed to use the work experience of internal auditors acquired during the Covid-19 pandemic. It is important to improve the efficiency of internal audit work in the company is to use a systematic approach that will contribute to the efficiency of the work of internal audit representatives. Conclusions. Martial law changed the purpose, functions and tasks of internal audit. During the war, its purpose is the continuity of the company's activities and the preservation of assets, the physical safety of personnel. The main function is consulting, analytical and predictive functions are of great importance.

The Possibility of Applying Agile Internal Auditing in the Iraqi Economic Units

The research problem is that the traditional methods of internal auditing are somewhat heavy with long and rigid procedures for the members of the audit process team, especially in light of the current developments that are reflected in the business environment and internal audit reports, so it is necessary to reconsider the traditional internal audit work method and assess the extent of its development by agile methods to reduce the time of the audit process on the activities and elements that add value and direct the effort and time to the activities and elements that add value to the work of the economic unit and the report of the internal auditor.
 The research aims to study the possibility of applying agile internal auditing in the Iraqi economic units and to achieve the goal of the research. The researchers made a checklist to test the research hypothesis, which states (there are no applications of lean internal auditing methods in the local environment). For (6) private banks listed in the Iraq Stock Exchange, which number (69) banks, after reviewing the periodic reports prepared by the Central Bank of Iraq.
 The researchers concluded that the banks of the research sample applied to the graceful internal audit in the Iraqi economic units is the Ashur Bank, as it obtained the highest arithmetic mean reached (2.55) and the highest relative importance as it amounted to (85.0%) and the second place the Iraqi Investment Bank got the arithmetic mean (2.48) and importance Relative (82.7%). In third place, the Khaleej Commercial Bank got an arithmetic mean (2.39) and relative importance (79.7%). In fourth place, the Trans-Iraq Bank got an arithmetic mean (2.28) and relative importance (76%). In fifth place, the Iraqi Islamic Bank got on the arithmetic mean (2.24) and relative importance (74.7%).
 
 Paper type: Research Paper

The relationship of internal auditors’ characteristics with external auditors’ reliance and its impact on audit efficiency: Empirical evidence from Indonesian government institutions

Previous studies have separately investigated the relationship between the internal auditors’ characteristics, the level of external auditors’ reliance, and the audit efficiency so it has not fully described how the external auditors make decisions to rely on internal audit work, which has an impact on audit efficiency. Therefore, the current study aims to fill the research gap by analyzing the relationship among the internal auditors’ characteristics, external auditors’ reliance and audit efficiency in one comprehensive research model with the institutional environment as a moderating variable in the relationship between the level of external auditors’ reliance and the audit efficiency. This study is conducted in government organizations with the consideration that the reliance of external auditors on internal audit work is one of the strategies for dealing with the limited resources faced by government external auditors in Indonesia. Surveys are conducted to collect research data. The research subjects are 164 external auditors (BPK) from 34 representative offices in Indonesia. The data are analyzed using Partial least Square-Structural Equation Modeling. The results of this study show that the level of external auditors’ reliance on internal audit work has a significant effect on audit efficiency. Furthermore, the results also show that there is a moderating effect of the institutional environment on the relationship between the level of external auditors’ reliance and audit efficiency. This study contributes to the application and development of relational coordination theory and institutional theory in accounting and auditing fields, especially in government sector audits.

Роль внутрішнього аудиту у системі управління підприємством

Abstract. Introduction. It has been established that internal audit is one of the types of internal economic control of business entities. The main criteria for the quality of conducting an internal audit as a management function are the efficiency, productivity and cost-effectiveness of the internal audit system. Purpose. The purpose of the article is to reveal the need for internal audit at the enterprise and the peculiarities of its organization. Results. It has been established that internal audit is one of the types of internal economic control of business entities. The main criteria for the quality of conducting an internal audit as a management function are the efficiency, productivity and cost-effectiveness of the internal audit system. The need for the functioning of the internal audit service at the enterprise is substantiated. The peculiarities and methods of its organization are considered, and their positive and negative aspects of internal audit are determined. The content of the concept of "internal audit" and the question of the need for its operation at the enterprise as a tool for improving the efficiency of the accounting system and activities as a whole are revealed. The main stages of internal audit are formulated and a set of qualitative and quantitative parameters for evaluating the effectiveness of the accounting system is proposed, based on the directions of research of individual objects (elements) of the accounting system by means of internal audit. The tasks of the internal audit regarding the evaluation of the efficiency of the enterprise's accounting system have been substantiated and specified. Conclusions. It has been proven that the effectiveness of internal audit at enterprises is determined by the level of its organization. The main objects of the internal audit organization are the creation and organization of the work of the internal audit system, the organization of the work of internal auditors, and the organization of the internal audit process.

Internal Audit Attributes on the Performance of Projects in Local Government Authorities in Tanzania

This study examined the attributes of internal audit on the performance of the projects in Local Government Authorities in Tanzania, in the way projects are operated and managed, based on the prevailed internal control systems. The role of an internal audit is to ensure the entity provides independent assurance towards risk management, governance and internal controls of the entity. In Tanzania, the Performance of projects are inadequate regardless of massive investments done by the Government. Internal control systems are not strong enough to ensure the performance of projects is compounded at paramount. Hence internal control systems should be addressed to cater the inadequate performance of projects in Local Government. Through examination of the attributes of internal audit work and the performance of projects in Local Government authorities in Tanzania, the study revealed that internal audit had positive influence on the performance of projects. This implied that a unit change in internal audit will increase project performance by the rate of 0.168. Therefore, the study showed that there is a significant direct relationship of internal audit and the performance of the projects in Local Government Authorities. Quantitative data, Likert scale, and multiple linear regression model was used under the study. Likert scales from questionnaires were used whereby data was analyzed by using SPSS V.26 software. These software packages have features that accommodate variables under the study and they are user–friendly. The study concluded that a great use of value-added strategies (rather than consecutive strategies) in audit results to greater performance of the projects implemented into various Local Government Authorities in Tanzania.

Does Internal Audit Functions Effectiveness influence External Auditors’ Reliance on Internal Audit Work?

This study examines the influence of internal audit function effectiveness on the extent to which external auditors rely on internal audit function work. A sample of 100 senior external auditors of Tanzanian-listed companies was purposively selected to provide the data. A questionnaire was employed to collect the data which were then analysed using a Partial Least Square Structural Equation Modelling. The result shows that internal audit function effectiveness has a significant positive effect on the extent of external auditors’ reliance on internal audit function work. This suggests that external auditors adjust their audit efforts in response to the effectiveness of the internal audit function, consistent with the audit risk model. The result contributes a new dimension, the internal audit function effectiveness and reliance, to the audit risk model. The result has practical implications for clients and external auditors looking to obtain a cost-effective audit of financial statements, by recognising the impact of internal audit functions on external audits.

INTERNA REVIZIJA U PANDEMIJSKOJ KRIZI

Prior to the pandemic itself, regulators around the world emphasized the importance of internal audit, but since COVID-19, it has become a matter of orderliness and quality of the organization's functioning, not just a compliance check box. Until then, it was believed that in that area one gives one's maximum and that it fulfills all the needs of the given organization. The economic crisis caused by the pandemic brought new challenges in the field of internal audit. It incentivised many experts in the field of internal audit, as well as prominent economic experts, to adapt internal audit to the conditions of reduced scope of direct contact. The need for a high-quality implementation of a reliable internal review system has become a primary need. The pandemic has played an important role in changing the way audit professionals and given risks have assumed their responsibilities and created a new blueprint for how internal audit work will function in the future.

The Impact of ERP Systems in Internal Auditing: The Portuguese Case

Nowadays, internal audit procedures are increasingly supported by the use of technological tools, such as integrated ERP (Enterprise Resource Planning) systems, aiming to improve the performance of internal auditors, as well as the effectiveness and efficiency of their work. In fact, the adoption of these systems, together with a good implementation strategy, enhances the strengths of a business, while mitigating its weaknesses. This study, through a questionnaire, aims to understand the impact of ERP systems on internal audit work in Portugal. Starting by understanding which systems, modules and functionalities are most used, the study also aims to assess how these systems influence the effectiveness and efficiency of audit work and also the level of satisfaction of internal auditors in their use. The main findings show that there is a wide variety of ERP systems used by internal auditors in Portugal, the most used being SAP ERP, and the Financial Accounting, Treasury and Purchasing modules. It is also concluded that internal auditors agree that the use of ERP functionalities positively influences the effectiveness and efficiency of their work, and they are generally satisfied with the use of these functionalities in their work.

THE ROLE OF INTERNAL AUDITING IN THE EFFECTIVE MANAGEMENT AND CONTROL OF THE AFFAIRS IN LGAS IN NIGERIA (KALTUNGO LGA)

The objective of this research is to find out the role of internal auditing in the effective management and control in the affairs of Kaltungo local government and whether the functions of the internal audit department are performed in compliance with the established standards, policies and how much it has succeeded in achieving the objective of the local government and finally, to find out the benefits that may be derived from effective audit control system in the affairs of the local government. It is expected that at the end of the research, it should have been established that the local government areas are faced with lot of problems such as ineffective audit control system. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. It was obtained from staff of the Local government, staff of the state ministry of local government affairs, through questionnaires and interviews. The total population for the study is 200 persons,140 staff of Kaltungo local government area,10 staff of Gombe state ministry of local Government affairs and 5 staff each from the other 10 local government areas of Gombe State. A total of 133 respondents was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies. The end result showed that there was need for the internal audit unit of Kaltungo local government to reactivate its accounting and financial reporting review engine and maintain sufficient and appropriate documentation of work done to provide a basis for the external auditor’s reliance on internal audit work.

Research on the value increment of internal audit of power grid enterprises

Power grid enterprises play an important role in China’s national economic construction and assume important social and economic responsibilities. With the further deepening of the reform of the power system, how to accurately grasp the new development stage, implement the new development concept, and build a new development pattern put forward new tasks and requirements for internal audit work, do a good job in the regular “economic examination” work, and realize the value added of internal audit, Accelerate the implementation of the strategic objective of “an international leading energy Internet enterprise with Chinese characteristics" and the development layout of “one body and four wings”, and play an important audit role for the high-quality development of power grid enterprises.

Determinants of Internal Audit Effectiveness in the Nigerian Paramilitary Agencies

The objective of this study is to examine the determinants of internal audit effectiveness in the Nigerian paramilitary agencies. The methodology of the study is qualitative using a questionnaire as a primary data source. The population and sample size comprises of three hundred and forty (340) audit staff from six (6) paramilitary agencies in Nigeria. The period of this study covers 10 years (2013-2022). Normality Test, Correlation, Regression Analysis were conducted on the collected data. The regression results revealed that internal audit quality with “β” and “sig” values of 0.125, and 0.044 respectively. Hence, internal audit quality has statistical significant impact on internal audit effectiveness of Nigerian Paramilitary services, it also shows that Independency of audit staff with “β” and “sig” values of 0.037, and 0.578 respectively. This indicates that the variable has a positive effect and it is statistically insignificant at 5% because the p-value is greater than 0.05. Hence independency of audit staff has no impact on internal audit effectiveness of Nigerian Paramilitary services, the results also revealed that Professional proficiency and competence of audit staff with “β” and “sig” values of 0.086, and 0.151 respectively. This indicates that the variable has a positive effect and it is statistically insignificant at 5% because the p-value is greater than 0.05. Hence professional proficiency and competence of audit staff has no impact on internal audit effectiveness of Nigerian Paramilitary services, also Organizational setting with “β” and “sig” values of -0.051, and 0.415 respectively. This indicates that the variable has a negative effect and it is statistically insignificant at 5% because the p-value is greater than 0.05. Hence, organizational setting has no impact on internal audit effectiveness in Nigerian Paramilitary services. The regression results revealed that internal audit quality with “β” and “sig” values of 0.189, and 0.003 respectively. This indicates that the variable has a positive effect and it is statistically significant at 5% because the p-value is less than 0.05. Hence, scope of internal audit work has impact on internal audit effectiveness of Nigerian Paramilitaries services and the results revealed that management support with “β” and “sig” values of 0.398, and 0.000 respectively. Hence, management support has statistical significance impact on internal audit effectiveness of Nigerian Paramilitary services. Therefore, we recommend that Internal audit staff should be fully independent in order to have unbiased internal audit report. Paramilitary agencies should implement policies and procedures against which organizational settings are to be gauged. The policies and procedures should be well-understood by the management staff so as to allow the setting of the organization to be effective. Finally, management of Nigerian Paramilitary agency should give support to the internal audit on widening the scope of the audit work in order to have a more reliable and effective internal audit report.

Using the Agile Internal Audit Work Method and its Reflection on the Sustainable Development Report- By Application to a Sample of Economic Units Listed in the Iraq Stock Exchange

The research aims to study the use of the agile internal audit work method and its reflection on the dimensions of sustainable development. To achieve the goal of the research, the two researchers prepared a questionnaire consisting of a set of questions to test the research hypothesis, which states (there is no statistically significant effect relationship between the method of agile internal audit work on the sustainable development report). 6) Private banks listed in the Iraq Stock Exchange, which number 69, after reviewing the periodic reports prepared by the Central Bank of Iraq. The two researchers reached a set of conclusions, the most important of which is the absence of an influence relationship between the agile internal audit work style and the sustainable development report of the research sample banks, and this proves the research hypothesis (there is no statistically significant effect relationship between the agile internal audit work style on the sustainable development report). The researchers presented a set of recommendations, the most important of which is the continuous attention to the periodic reports prepared by the agile internal audit team, as it is one of the important steps in determining the start of auditing the elements and activities of the highest importance and ending them, and then starting to audit the elements and activities of less importance and the need to streamline the procedures of the annual traditional internal audit plan. To get results faster and less time, as well as preparing internal auditor reports periodically within a short period of time.

Malaysian Internal Auditor’s Risk Judgment Performance: Examining the Impact of ISA 610 “Using the Work of the Internal Auditor”

Effective from December 2016, the Malaysian external auditor is required under the revision of the International Standard on Auditing (ISA) to give comments on Key Audit Matters (KAM) in the audit client’s financial statement which indirectly increases the relevancy of ISA 610 “Using the Work of Internal Auditor”. This study aimed to explore the impact of two main aspects under ISA 610 namely “external auditor engagement quality (EX_QUAL)” and “external auditor reliance (EX_RELY)” on internal auditor’s risk judgment performance. The survey of 274 internal auditors in the Malaysian public and private sector found that internal auditors who experienced high EX_QUAL outperform risk judgment as a result of awareness that the judgment made must be reflective of their own competency, independence, work performance and due care. Unfortunately, internal auditors who experienced high EX_RELY did not perform as expected since internal auditor’s anxieties on the bad consequences of full disclosure risk faced by the company. EX_QUAL could be one of monitoring mechanism to improve internal audit’s risk judgment. Furthermore, mitigating action, such as external auditor involvement in internal audit annual risk assessment plan could deter internal auditor bias and increase objectivity, and thus induce a positive impact of EX_RELY on internal auditor’s risk judgment performance. Keywords: risk judgment, performance, reliance, internal auditor, external auditor

KEY PERFORMANCE INDICATORS (KPI) OF INTERNAL AUDIT

The quality of internal audit work is among the basic pillars of trust in the value of findings and recommendations that management should accept with the belief that their application will improve the organization’s operations. Various stakeholders assess the quality of internal audit work. The paper presents various aspects of measuring the quality of internal audit work from the point of view of stakeholders and the economic activity to which the organization belongs.