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This study aims to assess the impact of determinants on the effectiveness of internal audit (IA) within the banking industry of Bangladesh.
Abstract
Purpose
This study aims to assess the impact of determinants on the effectiveness of internal audit (IA) within the banking industry of Bangladesh.
Design/methodology/approach
The data was obtained through 152 survey questionnaires from a total of 43 privately owned and six state-owned commercial banks in Bangladesh. The analysis was conducted using structural equation modeling.
Findings
The findings demonstrate that the independence of internal auditors and the quality of IA substantially impact enhancing the efficiency of IA. On the other hand, the competence of internal auditors and management support in IA functions do not significantly impact the effectiveness of IA.
Practical implications
The study’s findings may have significant policy implications for the government, regulators, internal auditors, management committees and other stakeholders in establishing programmes to enhance the efficacy of IA as a component of banking audit management reforms.
Originality/value
This study makes three distinct contributions to the existing literature. Firstly, previous literature focused on the determinants affecting the external audit efficiency of the public companies and banking sectors in Bangladesh (Hasan, 2018; M. M. U. Reza, 2021). In this study, the author enhances the research by presenting empirical findings on the IA effectiveness of banks. Secondly, the author expands the research by incorporating both private and state-owned commercial banks as samples. Thirdly, the study is unique given that it investigates the effectiveness of IA in response to the recent financial scandals in the banking industry of Bangladesh (The Daily Star, 2023).
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One of the three areas to which internal auditing is targeted is effectiveness. Yet we do not often determine whether the internal auditing function is itself operating…
Abstract
One of the three areas to which internal auditing is targeted is effectiveness. Yet we do not often determine whether the internal auditing function is itself operating effectively. We must identify the basic objective of internal auditing, define the goals to be accomplished, establish measures relative to achieving those goals, and finally evaluate the overall internal auditing process. We must separate the usual measures of output from the overall measures of outcome to determine the cost effectiveness and operational improvement aspects of the internal audit process. The former, the time‐honored internal audit output measures must be supplanted by internal audit effectiveness achievements.
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Dessalegn Getie Mihret, Kieran James and Joseph M. Mula
The purpose of this paper is to synthesize relevant theoretical and empirical literature to develop propositions and suggest a research agenda on the antecedents and…
Abstract
Purpose
The purpose of this paper is to synthesize relevant theoretical and empirical literature to develop propositions and suggest a research agenda on the antecedents and organisational performance implications of internal audit effectiveness.
Design/methodology/approach
The paper employs institutional theory and Karl Marx's theory of the “circuit of industrial capital” to synthesize relevant internal audit literature to develop theoretically justifiable propositions and highlight an operational research agenda.
Findings
Propositions and a research agenda are provided on potential antecedents of internal audit effectiveness and its possible association with company performance measured as rate of return on capital employed. Also, key variables are identified and operationalisation issues discussed.
Originality/value
As the extant literature does not provide a canon of internal audit effectiveness, the paper's originality is its argument that a positive association between compliance with standards for the professional practice of internal auditors and organisational goal achievement could serve as an approach to assess internal audit effectiveness. Furthermore, the use of the two theories in combination provides additional insights into identifying the antecedents of internal audit effectiveness and its measurement.
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Azam Abdelhakeem Khalid and Adel M. Sarea
This paper aims to examine bases of effectiveness in internal Shariah auditing undertaken in Islamic financial institutions (IFIs).
Abstract
Purpose
This paper aims to examine bases of effectiveness in internal Shariah auditing undertaken in Islamic financial institutions (IFIs).
Design/methodology/approach
This paper is theoretical in approach taking, as its starting-point, an extensive literature review. From a general agency theory, an Islamic agency theory is articulated and then applied to ascertain attributes of internal Shariah audit effectiveness revolving around the concept of independence.
Findings
Effective internal Shariah auditing, as a mechanism of assuring Shariah compliance by IFIs, varies directly with the degree of independence enjoyed by internal Shariah auditors themselves. The research propounds that an articulated Islamic agency theory holds potential to serve as a theoretical foundation to build a multi-dimensional conceptual framework based on independence utile for evaluating internal Shariah audit effectiveness.
Research limitations/implications
Evidence is drawn strictly from secondary sources.
Practical implications
To assure effectiveness of internal Shariah auditing, IFIs ought to increase the level of independence of internal Shariah auditors.
Originality/value
Internal Shariah audit effectiveness in IFIs has not been extensively studied in comparison with both studies of external Shariah audit effectiveness in IFIs and internal audit effectiveness undertaken by conventional financial institutions. This research fills that gap.
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Khaled Ali Endaya and Mustafa Mohd Hanefah
The purpose of this paper is to investigate the direct relationship between internal auditor’s characteristics[1] and internal audit effectiveness[2], and the moderating effect of…
Abstract
Purpose
The purpose of this paper is to investigate the direct relationship between internal auditor’s characteristics[1] and internal audit effectiveness[2], and the moderating effect of senior management[3] support.
Design/methodology/approach
Standard multiple regression and moderated multiple regression are applied, and the data were collected from 114 members of Libyan Association of Accountants and Auditors[4] by using personally administered questionnaire.
Findings
The findings reveal that internal auditor’s characteristics have a significant impact on internal audit effectiveness, and senior management support has a moderating effect.
Practical implications
The findings would encourage Libyan organizations to concentrate on the issue of internal audit effectiveness, and will strengthen the capacity of internal auditing in public organizations.
Originality/value
This paper contributes to the literature of both internal audit and management studies and represents the first effort to examine the impact of internal auditor’s characteristics on internal audit effectiveness with senior management support as a moderating variable.
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Athuman Kalokola Mahyoro and Pendo Shukrani Kasoga
The purpose of this study is to examine how the level of attributes of the internal audit function relates to the effectiveness of internal audit services in local government…
Abstract
Purpose
The purpose of this study is to examine how the level of attributes of the internal audit function relates to the effectiveness of internal audit services in local government authorities (LGAs) in Tanzania.
Design/methodology/approach
Data have been collected through a survey whereby 510 respondents from LGAs in Tanzania through their Heads of Internal Audit Functions, Internal Auditors and Chairpersons of Audit Committees respond to the questionnaire. The data were subjected to principal component analysis and exploratory factor analysis to reduce the set of items and to provide continuous scores for use in multiple regression analyses.
Findings
The findings reveal that audit quality; organization setting and auditee attributes have a significant positive influence on the effectiveness of internal audit services in LGAs in Tanzania.
Research limitations/implications
The study covered only LGAs in Tanzania. Future research in this field should address the gaps identified in the study.
Practical implications
This paper highlights areas that need management attention on the improvement of the effectiveness of internal audit units.
Originality/value
This paper contributes to the literature of both internal auditing and management studies by linking the level of attributes of internal audit function which are audit quality, organization setting, auditee attributes and effectiveness of internal audit services in Tanzania.
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Azam Abdelhakeem Khalid, Hasnah Haj Haron and Tajul Ariffin Masron
This paper aims to examine the characteristics influencing internal Shariah audit effectiveness in Islamic financial institutions (IFIs) in Bahrain.
Abstract
Purpose
This paper aims to examine the characteristics influencing internal Shariah audit effectiveness in Islamic financial institutions (IFIs) in Bahrain.
Design/methodology/approach
Data were collected from 76 internal Shariah auditors, 23 Shariah supervisory board and 16 audit and governance committee from 52 IFIs in Bahrain. The data were analyzed using structural equation method via SmartPLS 2.0 to examine the relationship between characteristics and effectiveness of internal Shariah audit.
Findings
It was found that competency and work performance were positively significant with internal Shariah audit effectiveness. The findings revealed that the main competency of internal Shariah audit to influence effectiveness were to have professional certification and skills, while work performance to influence effectiveness were engagement planning, performing the engagement and communicating results with management and having sufficient information to provide sound opinion formed by Shariah audit.
Originality/value
From the research perspective, this is the first study that examines the relationship between internal Shariah audit characteristics and its effectiveness in Bahraini IFIs.
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Khurram Ashfaq, Shafique Ur Rehman, Moeez Ul Haq and Muhammad Usman
This study aims to explore the effectiveness and reliability of the performance of internal auditor by the stakeholders for their decision making. The absence of rules and…
Abstract
Purpose
This study aims to explore the effectiveness and reliability of the performance of internal auditor by the stakeholders for their decision making. The absence of rules and regulations generates the debate that the non-standard reporting of the assessment of the internal controls system’s assessment by internal auditor and reliance by the external auditor.
Design/methodology/approach
The study used the mixed-method (triangulation) for the analysis quantitative data was used for regression with Smart PLS 3.2.8, and the qualitative data was used to prove and strengthen the results. The data is collected for five IVs (Objectivity of IAF, Work Performance, Competence, Internal Control System’s Assessment and Sourcing of IAF) and their impact on two DVs (Effectiveness and Reliance). This study used five areas as the target audience (Internal Auditor, External Auditor, Professional bodies, Shareholders, SECP and SBP). A total of 150 respondents were approached and received a valid response of 98 respondents.
Findings
The study explores the positive relationship between Objectivity of IAF, Work Performance, Competence, Sourcing of IAF on Effectiveness and Reliance. Internal Control System’s Assessment having significant relation with Effectiveness and non-significant with reliance because the absence of rules makes it unreliable for stakeholders.
Originality/value
The study found that the system for reporting the internal control needs rules and regulations advancement on the immediate basis for the betterment and safeguard of stakeholders to avoid the events like WorldCom and ENRON.
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This paper aims to examine the extent to which two commonly recommended information sharing and communication interventions, direct reporting lines between the internal audit…
Abstract
Purpose
This paper aims to examine the extent to which two commonly recommended information sharing and communication interventions, direct reporting lines between the internal audit function (IAF) and the audit committee (AC) and their joint reviews of internal audit standards and procedures, improve the internal audit in the continuous audit control and monitoring efforts.
Design/methodology/approach
This study uses data from the Audit Intelligence Suite-Benchmarking (AIS) Report for the years 2007 to 2016 published by the Institute of Internal Auditors. The authors test the research hypotheses using the ordinary least squares regression method.
Findings
Functional reporting lines from the IAF to the AC positively impact the internal audit, but administrative lines have a negative impact. Reviews conducted jointly between the IAF and the AC positively influence the internal audit. The impacts of reporting lines and joint reviews are also associated with accounting complexity within a given industry, organizational control structure, organizational scope and the level of IAF’s responsibilities over internal control environment to comply with Sarbanes–Oxley (SOX) Act of 2002.
Research limitations/implications
Because the study uses AIS data, operationalization of variables is constrained to items in the given data set. Future studies, including field studies, may identify other variables and measures using diverse data sources. This study expands the knowledge of effective means of information sharing and communication to enhance interactions between the IAF and the AC.
Practical implications
The results suggest that the use of reporting lines should correspond to accounting complexity, organizational control structure, organizational scope, and reliance on the IAF in handling SOX responsibilities. They also highlight the importance of joint reviews between the IAF and AC in ensuring a high-quality internal audit.
Originality/value
The authors envisioned reporting lines and joint reviews as an excellent tool to balance the relationship between the IAF and the AC for continuous internal auditing beyond generating internal audit reports according to the US Committee of Sponsoring Organizations of the Treadway Commission framework Principle 14.
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Lourens Erasmus and Philna Coetzee
The purpose of this study is to determine the differences in perception of the key stakeholders on the drivers of internal audit effectiveness, namely, senior management and the…
Abstract
Purpose
The purpose of this study is to determine the differences in perception of the key stakeholders on the drivers of internal audit effectiveness, namely, senior management and the audit committee, in relation to identified measures. To be seen as an effective internal audit function, value needs to be added for both these stakeholders. It is thus important for internal auditing to obtain an understanding of what these stakeholders respectively perceive as the most prominent drivers of internal audit effectiveness.
Design/methodology/approach
Heads of internal audit functions (providing insight into the drivers), chairpersons of audit committees and senior management (providing insight into the measures) within the South African public sector responded to a survey. The data were subjected to an exploratory factor analysis and principal component analysis to reduce the set of items and to provide continuous scores for use in a multivariate multiple regression analyses.
Findings
Senior management and the audit committee differ in their level or order of prominence of the identified drivers that influence the identified measures of internal audit effectiveness. No statistical similarities in their level of views could be found.
Originality/value
To enhance the effectiveness of internal auditing, the internal audit functions should take cognisance of the difference in perceptions of its key stakeholders on the drivers of internal audit effectiveness, in relation to identified measures, to manage these relationships. No previous research could find that statistically compared views of senior management and the audit committee regarding the drivers of internal audit effectiveness.
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