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The Contribution of Internal Audit Diamond Model in Preventing Fraud and Corruption
Abstract
Internal audit is a powerful policy tool in the private and public sectors that enhances sound financial management of organizations and ensures their sustainability by preventing fraudulent actions. The success of its implementation is focused on a multitude of factors concerning the internal environment in which it operates as well as the evolving dynamic external environment. Methodologically, the paper is based on the Internal Audit Standards and provides a systematic literature review. The theoretical model, known as the 'Diamond Model', developed four main pillars of internal audit effectiveness: inputs (budget, staffing, internal auditors' adequacy, digital assets); outputs (audit reports, recommendations, assurance services, consulting services); processes (planning, execution, reporting, follow-up); and internal audit relationships with all stakeholders (senior management, audit committee, auditees, external auditors). Those pillars are constrained by time, quality, quantity, and cost. The research results illuminate key aspects of internal audit effectiveness in terms of sustainable governance with emphasis on ESG criteria. The research novelty is Business, Management and Economics: Research Progress Vol. 6 The Contribution of Internal Audit Diamond Model in Preventing Fraud and Corruption 84 evident in the practical usage of the Diamond Model which serves as an innovative tool for sound governance improving internal processes and operations, monitoring compliance with policies, laws, and regulations, aligning the objectives of the organization with its mission, preventing fraud and corruption, and finally adding value to the organization and improve performance of its operations.
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The aim of the research is to identify in what extent the employees' socio-demographic determinants affect the detection of fraud and corruption incidents in workplace environment. The methodology was used for data collection is primary source through random sampling. A total of 613 valid questionnaires based on employees in Greek audit and advisory firms were answered. Key non-parametric tests as Friedman test and Spearman's correlation were used. It was found that all fraud and corruption variables are positively correlated and, in most cases, founded statistically significant. Furthermore, the top mean rank among fraud incidents was the personal use of internet at work and among the corruption incidents was nepotism. Considering the socio-demographic characteristics, it is observed that most aged and experienced employees, irrespectively hierarchical position, or gender; tend to have no significant differences about their perceptions of previous fraud and corruption incidents. The research contributes towards enhancing the fraud and corruption detection offering substantial implications for fraud examiners and researchers.
In this bibliometric analysis, the study explores the evolution of internal auditing and its transformation from a basic financial oversight function to a critical entity that manages various aspects of organizational culture, IT challenges, risk management and more. The study emphasizes the multifaceted role of modern auditors who must combine traditional practices with the demands of a rapidly changing business environment. Today’s auditors are instrumental in shaping resilient, ethical and socially aware companies. Looking back in time, the study illustrates how the discipline has grown in response to global financial crises, focusing on transparency, risk management and expanded auditing techniques. This evolution positions auditors as strategic partners within the organization rather than simply financial scrutineers. Furthermore, the study emphasizes the interplay between effective auditing and overall governance structures, highlighting that internal auditing is a nuanced craft continuously refined by context-specific variables. A thematic cluster analysis reveals the discipline’s complexity, emphasizing its fundamental principles and emerging focus areas. Finally, the study underscores the adaptability and future-focused nature of internal auditing, which remains committed to transparency, accountability and excellence in a dynamic global landscape.
Responding to the calls in both earnings management and sustainability literature to examine corporate governance patterns, this study fills the sustainability literature gap by shedding light on the moderating role of corporate governance on earnings management and environmental, social and governance performance. Using a sample of UK firms listed on the London Stock Exchange for the period 2016–2020, we find considerable evidence that earnings management reduces environmental, social and governance performance. Importantly, we find that board gender diversity among other corporate governance mechanisms is stronger and more effective in attenuating the negative effects of earnings management on environmental, social and governance performance significantly. We find support for the agency theory that corporate governance mechanisms reduce the managerial exploitation of resources required for sustainable investments and sustainability performance.
Purpose
Although many firms are investing considerable resources in building and designing strong and effective internal auditing (IA) to improve corporate governance and internal control processes, IA literature is still relatively fragmented. Therefore, this paper aims to provide a systematic review of studies on IA in 27 European countries and the UK.
Design/methodology/approach
Based on the Scopus database, 142 papers published between 1987 and 2022 were analyzed. This study focused on evaluating and analyzing the characteristics of literature and the themes investigated with a focus on four key aspects: governance, the effectiveness of IA, the relationship between internal auditors and other parties and risk management to provide directions for future research.
Findings
This study found that IA literature did not provide the integrated knowledge of internal audit functions (IAFs) and the factors that could contribute to their implementation as required. The results showed that the UK, Greece and Italy dominate the published literature in terms of the number of studies. There are a few studies that investigate IA in private institutions and nonprofit organizations. Interestingly, a vast majority of studies are not based on theoretical grounds. The results also showed that there is an absence of studies that discuss the impact of cultural and political systems as well as the demographic characteristics of auditors on the implementation of IAFs.
Originality/value
This study is useful for researchers, organizations and regulators because it contributes to the literature by highlighting the intellectual development of IA in the European countries and the UK, providing several directions for future studies. To the best of the authors’ knowledge, this research is the first study to use a systematic review approach in evaluating the intellectual development of IA research in European countries, identifying areas and elements that received less attention in previous studies and providing a roadmap for future studies.
In recent years, significant changes have been made in the internal audit function, based on regulatory stipulations along with the need for improvement of internal audit services. These changes had a significant impact not only on the business itself, but also on the markets and on various stakeholders, and have led to the need to implement a methodology for conducting internal audits based on risk. Our research attempts to record the established status in the Greek shipping companies listed in the New York Stock Exchange NYSE regarding risk based internal audit, based on the perceptions of internal audit professionals. In order to succeed in that, we performed a survey among internal audit employees of various levels at Greek shipping companies listed on the NYSE. Our research contains useful conclusions regarding the status of implementation of risk based internal audit methodology. Also, our research focuses on the impact of certain characteristics of internal audit like control activities usingmultiple regression econometric model based on the regulatory framework for internal audit as provided by the Institute of Internal Auditors. In order to succeed in that, we execute regression analysis based on the results of the aforementioned survey questionnaires. Our results revealed significant relationship between risk based internal audit and some the characteristics of internal audit. Our conclusion is that risk based internal audit methodology may have viable outcomes to the management of risks within the Greek listed Shipping companies.
Keywords: Internal audit, Corporate governance, Shipping industry, Risk based internal audit
Classification codes: M40, M42
This study examines factors influencing internal audit effectiveness in the Tunisian context. Data was collected from responses to a questionnaire addressed to chief audit executives of 148 Tunisian organizations. Multiple regression analysis examines the association between the effectiveness of the internal audit function and six principal factors. Results reveal that the effectiveness of internal auditing is influenced by: (1) the independence of internal audit, (2) the objectivity of internal auditors, (3) the management support for internal audit, (4) the use of internal audit function as a management training ground, and (5) the sector of organization. This study provides useful information to practitioners and academics who are interested to identify the determinants of internal auditing effectiveness in developing countries.
This study determines which competency-related factors could significantly influence the decision to outsource some or all internal audit services to third parties. Underpinned by the core competencies theory (CCT), the study utilised the Institute of Internal Auditors Research Foundation (IIARF) data to address the global Common Body of Knowledge (CBOK) 2015 research objective of the study. Three constructs were identified, namely: chief audit executive (CAE) knowledge; CAE experience; and internal audit staff complement. The 72 identified variables within the three constructs were reduced to 20 variables by means of principal component analysis (PCA) and weighting. Binary logistic regression analyses was utilised to determine which variables have a statistically significant relationship with the utilisation of third parties to conduct internal audit services. The analyses revealed 19 statistically significant predictors which are useful for management and the board, but also internal audit management, that may influence the decision to utilise third parties to enhance the internal audit function's competence.
This study aims at identifying main determinants of internal audit effectiveness in Gurage zone local Administrations. Hence, descriptive and explanatory research design was considered. The survey includes 60 respondents; using simple random sampling Woredas were selected and all units of each selected were included. The researcher collected data from primary sources. The primary data has been collected by distributing five scale likert scale questioner to the sampled respondent. To analyse the collected data the study use descriptive statistics, correlation statistics and econometrics model. A total of five explanatory variables were included in the regression and the results of the model show that quality of internal audit, independency of internal audit and proficiency of internal auditors are positively affect internal audit effectiveness. Based on the finding the study recommends that the Office of Finance and Economic development has to maintain the investigative and reporting independence of internal auditors. Besides, the internal audit offices have to do for the development of internal auditors through continuous education and short term training so as to enhance the level of internal audit effectiveness.
J o u r n a l o f A c c o u n t i n g a n d M a n a g e m e n t I S S N : 2 2 8 4-9459 J A M v o l. 8, n o. 1 (2 0 1 8) Abstract: The study examined factors that determine internal audit effectiveness among SOEs in Ghana. The study was conducted in response to various scandals among Ghanaian SOEs and the lack of empirical studies on determinants of internal audit effectiveness that can deal with these problems. The study specifically examined the respondent's perception about the impact of factors such as; competence of internal audit unit, size of internal audit unit, relation between internal and external auditors, management support for internal audit function, and independence of internal audit unit on internal audit effectiveness among SOEs in Ghana. The surveyed internal auditors, accountants and management of these sampled SOEs in Ghana. The results of the study showed that management support for internal audit function is the most significant determinants of internal audit effectiveness. The study also revealed that size of internal audit unit, competence of internal audit staff, independence of internal audit unit as well as good relationship between internal and external auditors were significant determinants of internal audit effectiveness. The study apart from contributing to the non-existent literature on the subject matter in Ghana, also serve as guidance to policy makers on critical areas to address to ensure affective internal au dit in SOEs in Ghana.
The study examines the similarities and differences between the private and public sectors internal audit functions in Nigeria. The features examined include the hierarchical position of the internal audit functions, outsourcing of internal audit activities, reporting relationship of the internal auditor, and the coordination between internal and external auditors. A survey of internal audit managers of both sectors was undertaken to establish their current practices. The results revealed that there are no much differences in the hierarchical positioning of the internal audit function in both sectors. A substantial difference was found in the reporting lines of internal auditors in both sectors. The results further showed that private sector outsources internal audit activities more than the public sector and a slight difference exists between the two sectors about the level of coordination between internal and external auditors. Finally, the result indicated that private sector experiences a reduction in external audit fees compares to its counterpart in the public sector.
ABSTRACT
There has been a marked increase in the global practice to focus on internal auditing as a mechanism to protect companies. With the advent of information technology, companies are presented with even more opportunity to improve the way they perform internal audit. However it is expected that such opportunity is dependent upon other factors such as management support. This research examines the moderating effect of top management support on the relationship between information technology usage and internal audit effectiveness. Questionnaires were sent to internal auditors in Yemeni private companies, with a total of 104 responses obtained. The study found a significant positive relationship between information technology usage and internal audit effectiveness. Similar result was obtained on the relationship between top management support and internal audit effectiveness. However the study found that top management support does not moderate the relationship between information technology usage and internal audit effectiveness.
Key words: internal audit; information technology; management support.
The objective of this paper is twofold. Firstly, it portrays and evaluates the existing corporate governance structure and secondly, highlights its connection with internal audit function and management practices. It is adopted a descriptive research analysis using the quantitative approach on a sample of listed companies in Athens Stock Exchange for the year 2016. Our methodological research instrument is based on COSO (2013) Internal Control - Integrated Framework. The paper concludes that corporate governance is driven to managerial excellence and effective governance because of internal audit processes, risk assessment, control activities, information and communication, and monitoring activities. The research contributes to the corporate governance literature by providing valuable insights into the major aspects of a well-functioning internal control system and its relevance to management performance. Proposed areas for future research directions should be discussed.
This research aims to examine the influence of internal audit on effective corporate governance in commercial banks listed on Muscat Securities Market (MSM) in Oman. A questionnaire was used to collect data and was distributed to the 100 top senior level officials and internal audit department of the commercial banks. The regression model that was used in this study was five dependent variables: internal audit independence; proficiency and due professional care; nature of work; quality assurance and improvement program and managing the internal audit activity.
The finding of the research establishes a significant positive relationship between internal audit and effective corporate governance. Variables internal audit independence, proficiency and due professional care, and nature of work were significantly associated with corporate governance. For quality assurance and improvement program the internal audit activity, their influence on corporate governance is not statistically significant.
The internal audit functions are used to control the financial departments' employees' actions. Traditionally, the internal audit was found in private sector only, but recently, the internal audit expanded to cover the public sector. This study aims to highlight the role of internal auditors in maintaining the public money. The results show that the Internal Auditor government departments have a role in the maintenance of public money. Additionally, the results show that The Internal Auditors in government departments have knowledge to maintain the public money. Thus, the results support the alternative hypotheses.
The purpose of this study is to explore the relationship between
internal audit effectiveness, internal auditor’s responsibility, training and fraud
detection. During the last decade internal auditing has become an integral part of
modern businesses since it is capable of detecting errors or offences which lead to
fraud. In order to investigate the above relationship, we conducted a survey of
companies listed in the Athens Stock Exchange. We used factor analysis to validate
the survey instrument and to construct our variables measuring fraud detection,
internal audit effectiveness, auditor responsibility and training. We used regression
analysis to test for significance between the constructed variables. Our analysis
shows that audit effectiveness, auditor responsibility and auditor training affect
positively and significantly the detection of fraud. Our results highlight the
importance of internal audit in detecting accounting fraud and the need of
companies to invest on internal audit processes and training in order to achieve
enhanced corporate performance. Finally, our research stresses the importance of
internal audit and fraud detection for companies which operate in countries which
are in a period of economic crisis.
We investigate organisational and environmental factors that influence firms' incentives to develop high-quality internal audit functions (IAFs) by using a unique international sample formed by matching proprietary data from a global internal auditor survey with public data obtained from Worldscope. Concerning organizational factors, we find that a positive relationship exists between IAF quality and firm complexity and confirm that complex firms have a higher demand for monitoring and advising and, therefore, a greater need for formal controls. In addition, IAF quality is positively related to board monitoring and audit committee diligence but negatively associated with CEO power, which suggests that IAF quality is influenced by other key players in corporate governance. Regarding environmental factors, we document that IAF quality is positively associated with industry competition, which implies that a firm's incentive for a high-quality IAF is enhanced when confronted with greater environmental uncertainty. Furthermore, IAF quality has a significantly positive relationship with our self-constructed index of IAF requirements included in national corporate governance codes, which indicates that strong home-country corporate governance codes play a role in fostering IAF development.
Internal auditors play crucial role in ensuring, accountability, probity and governance of public sector entities. However, the effective performance of such duties would depend on the challenges
faced by internal auditors in public sector institutions. The objective of this study is therefore to examine the challenges faced by internal auditors in public sector audit in south-eastern, Nigeria. The study shall specifically examine whether independence of internal auditors, compliance with set out rules and regulations of public fund management and, improper segregation of duties pose a challenge to internal auditors of public sector entities. The study adopted the survey research design. The population of the study was drawn from accountants and auditors in the offices of the Accountant-General and Auditor-General of Anambra State. The study employed Independent-Samples Mann-Whitney U Test technique in testing the formulated hypotheses. The study finds out that while independence and the compliance with set out rules and regulations of public fund management pose a challenge to internal auditors of public sector entities, however, that improper segregation of duties does not pose a challenge to internal auditors of public sector entities. The study recommends that the independence of internal auditors in public institutions should be enthroned. And, secondly, to ensure compliance with rules and regulations of public fund management ensured.
There is a dearth of research and absence of any research model which identifies and examines the effectiveness of IAF in the Kingdom of Thailand (Thailand). Accordingly, the research conducted culminated in the construction of conceptual and empirical IAF models, which should prove useful to internal audit practitioners and academic researchers in Thailand. The purpose of this dissertation is to identify, measure, and evaluate factors that influence the effectiveness of the internal audit function in Thailand. Understanding the factors which influence internal audit function effectiveness will help Thai internal auditors at all levels (e.g. junior, senior, manager, and executive) improve the efficiency, efficacy, and value of the function to their companies and constituents. Main statistic tests were used such as multiple regression, exploratory factor analysis, and structural equations modeling (SEM). This study found that three new factors (compliance with the Institute of Internal Auditors (IIA) standards, use of a risk-based audit plan, and presence of a quality assurance and improvement program)have high influence to the internal audit function effectiveness in Thailand.
The paper investigates whether a supportive control environment is associated with the internal audit effectiveness and what characteristics of a control environment are important in this respect. A survey was conducted via a questionnaire on 54 mostly large companies in Croatia. Appropriate methods of statistical analysis were used in order to analyse the survey results. According to the research results, in the case of a supportive control environment there is a greater chance that the internal audit will be effective and that its recommendations will be taken into account to a greater extent. In addition, the survey results showed a statistically significant correlation between perceived internal audit effectiveness and a higher level of supportive control environment.
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.
This paper examines the determinants of internal audit effectiveness in decentralized local government administrative systems of Ghana. Ghana’s local government system is structured into metropolitan, municipal, and district assemblies (MMDAs). For the purpose of the study, we focused on the Ashanti region of Ghana which has the highest number of MMDAs. The motivation for the study is derived from the increased interest in the internal audits of local government units. Using a descriptive survey, the data gathered, through the use of questionnaire, revealed that majority of the internal audit staff of MMDAs in the Ashanti Region of Ghana possess the requisite professional proficiency. Contrary to the perception that audit quality in the public sector is usually compromised, the study revealed that there exists high quality of audit work due to compliance with the international standards on auditing and local audit legislations. Professional proficiency, organizational independence, and career advancement were found to have statistically significant positive relationship with internal audit effectiveness, whiles top management support was found to have no effect on internal audit effectiveness.
This paper examined the role of effective internal audit in public accountability using the staff of
Accountant-General and Auditor-General’s offices in Enugu State of Nigeria. It made use of 3
specific objectives, 3 research questions and 3 hypotheses. The population of the study was 430
which comprised 318 Accountants and 112 Auditors. From there, a simple random sampling
technique was used to select a sample of 204 Accountants and Auditors on equal basis. Data were
gathered for the study with structured questionnaire. Responses were designed using a modified
Likert four-point scale of 4 – Very Great Extent, 3 – Great Extent, 2 – Little Extent and 1 – Very
Little Extent. The internal consistency and reliability of the research instrument was tested with
Pearson Product Moment Correlation Coefficient and Cronbach Alpha. While research questions
were analyzed with mean and standard deviation, the hypotheses were tested with Spearman
Rank-Order Correlation, with the resultant correlation coefficients transformed into students’ tdistribution.
The study revealed that adherence to internal audit practices promoted public
accountability. The paper concluded that any government desirous of pursuing public
accountability policy, should strengthen all mechanisms that guarantee strict adherence to internal
audit practices with its overwhelming pervasiveness instead of duplication of anti-graft agencies.
The paper recommended effective internal audit model to APC-led government to enable it fulfill
its campaign promises to the Nigerian nation.
There are relatively fewer number of studies focused on internal audit effectiveness, than the number of studies on the effectiveness of external audit. Our focus in this paper is mainly on determinants of internal audit effectiveness. For this purpose we developed and tested five hypotheses using an investigation approach. We gathered our data using a questionnaire, filled out by 355 internal audit manager and 272 other internal audit staff.Our multivariate regression model estimates the relationships between the effectiveness of internal audit department and its five main determinants: competency of internal audit staff, size of internal audit department, communications between internal auditors and external auditors, management’s support for internal audit department, and independent (outsourced) internal audit.Our results show that internal audit effectiveness has stronger relationships with management’s support for hiring and experienced educated staff, providing the internal audit department with sufficient resources, and the size of internal audit department.
The subject of governance has become a pertinent issue for business, government, politics, and the general public. In both the private and the public sectors, there is an increasing demand for good governance in terms of accountability and transparency, and internal audit function within organizations has an important role to play in the achievement of these objectives. This study therefore assessed the effects of internal audit function (IAF) on good governance in the public sector in Nigeria. Primary data was obtained through the administration of structured questionnaire to purposively selected respondents comprising Head of Internal Audit, Director of Finance and Supplies, and Head of Local Government Administration, in 33 public sector organizations in Oyo State, Southwestern Nigeria. A total of 99 respondents participated in the study. IAF was measured by independence of internal audit system, scope of work, professional competence, examination process, and management support, while quality of service, management of public resources measured good governance. Data obtained was analysed using correlation analysis and multiple regression technique. The results showed that the effectiveness of IAF in Nigerian public sector organisations was moderate since internal audit system in the public organisations was not absolutely independent and professional competence was limited due to the challenge of insufficient funds to successfully carry out its duties. Moreover, the study revealed that IAF had significant and positive effect on the quality of service delivery and management of resources in the public organisations. The study concluded that internal Audit function is a veritable tool for promoting good governance in the Nigerian Public Sector. This study therefore recommended that there should be legal mandate in public sector organisations that allows government information to be publicly published and special funds should be made available to internal auditors as it would enhance effectiveness of internal audit function and boost good governance in the organisations.
Purpose: The main aim of this research is to assess the effectiveness of internal governance controls and processes with specific focus on the skillsand challenges facing internal auditors operatingin Libya when they conductinternal audits.This study also investigateswhether Libyan internal auditors have sufficient skills needed to implement their internal audit function effectively. Design/methodology/approach:Forty one internal auditors working in six banks and three insurance companies listed on the Libyan Stock Market were surveyed. Wilcoxon signed test and Z-testwere used to test the research hypotheses. Findings:The findings of this study illustrate that internal auditors operating in companies listed on the Libyan Stock Markethave limitedprofessional, interpersonal and technical skills. Specifically, the findings show that internal auditors in Libya have limited skills includingpublic speaking and presentation skills. Additionally, they have limitedskills of ITaudit and international financial report preparation skills. Originality/value:There is a dearth of empirical evidence on the extent of audit, interpersonal, professional and technical skills relating to internal auditors generally, but particularly acute in Arab and developing countries. This study, therefore, contributes to the literature by offering new insights with particular focus on Libya.
The purpose of this study is to investigate the perceived effectiveness of internal audit units in fraud prevention in Jordanian banking industry. It examines the effect of internal audit souring arrangement on perceived effectiveness of fraud prevention from senior managers’ point of view. A survey of forty five executives is selected to gather information’s to test the study hypotheses. The main findings indicate that internal audit units are perceived effective in fraud prevention. Furthermore, in-house internal audit units are perceived more effective than outsourced internal audit functions in fraud prevention. The study surprising result is that internal audit units may fear from retaliation when reporting fraud related top management, however, this may result in weak independence and objectivity of internal auditors. One of the crucial reasons for these results is that in-house internal audit units have more in depth- knowledge about banks culture, polices and procedures than outsourced auditors . Moreover, senior managers consider that internal audit units have more experience than outsourced auditors in fraud prevention and detection. The study recommends that internal auditors should have comprehensive training programmes to get the sufficient knowledge in fraud prevention and detection in banking industry. Key words: Accounting; Audit; Structure; Fraud; Banking; Jordan Resume: Le but de cette etude est d'examiner l'efficacite percue des unites d'audit interne dans la prevention contre la fraude dans l'industrie bancaire jordanienne. Il examine l'effet de l'audit interne sur l'efficacite percue de la prevention contre la fraude du point de vue des cardres superieurs. Une enquete aupres de 45 cadres est selectionnee pour rassembler des informations afin de tester les hypotheses de l'etude. Les resultats principaux indiquent que les unites d'audit interne sont percues efficaces dans la prevention contre la fraude. Par ailleurs, les unites d'audit interne a l'interieur de l'organisation sont percues plus efficaces que des fonctions d'audit interne externalisees dans la prevention contre la fraude. Un resultat surprenant de l'etude est que des unites d'audit interne auraient peur des represailles lors que la fraude est liee a la haute gestion, cependant, cela peut conduire a l'independance et l'objectivite faibles des auditeurs internes. L'une des raisons essentielles de ces resultats est que les unites d'audit interne a l'interieur de l'organisation ont plus de connaissances en profondeur sur la culture, les politiques et les procedures de l'industrie bancaire que les auditeurs externalises. Par ailleurs, les cadres superieurs considerent que les unites d'audit interne ont plus d'experiences que les auditeurs externalises dans la detection et la prevention contre la fraude. L'etude recommande que les auditeurs internes doivent avoir des programmes de formation complets pour obtenir des connaissances suffisantes dans la detection et la prevention contre la fraude dans le secteur bancaire. Mots-cles: Comptabilite; Audit; Structure; Fraude; Operations bancaires; Jordanie
Purpose
The purpose of this paper is to investigate several variables that are theoretically associated with the internal audit function (IAF) having an active role in corporate governance.
Design/methodology/approach
The paper uses responses from 782 US Chief Audit Executives (CAEs) in the CBOK (2006) database for the investigation. The paper makes the assumption that an IAF has only one CAE, thus the dataset represents 782 US IAFs.
Findings
It is found that an IAF having an active role in corporate governance is significantly and positively associated with the use of a risk‐based audit plan, existence of a quality assurance and improvement program, and audit committee input to the audit plan. Control variables such as stock exchange listing, firm size, the existence of an internal control framework, and a CAE with an internal auditing qualification also are positively associated with the IAF having an active role in corporate governance.
Research limitations/implications
A limitation of this study is that CAE perceptions may deviate from actual practice. Also, the sample is limited to the US CAEs who are also IIA members, thus it may not reflect the views of non‐members and the CAEs from other countries.
Practical implications
The results have implications for CAEs who wish to increase the chance for their IAFs to play an active role in corporate governance. The IIA may benefit from these results in its supporting role for the internal auditing profession.
Originality/value
The study is complementary to the literature on the existence and size of the IAF and reveals several avenues for further research.
Corporate scandals and failures such as Enron, WorldCom, etc. were highly catastrophic and had a terrible effect on stakeholders. The pressure of globalisation and the intense competition have lead to organisations encouraging good corporate governance. Organisations have to promote transparency and accountability of financial information. As Gramling et al. (J Account Lit 23:194–244, 2004) argued there are four important mechanisms of corporate governance include boards of directors, audit committees (among others) and internal and external audit functions. However, this paper will focus on the rela-tionship between two corporate governance mechanisms (audit committee and internal audit function). Thus, our purpose is to analyse the relation between characteristics of the audit committee and internal audit function and earnings management measured as abnormal accruals to test the quality of financial state-ments. We hypothesise that the association between the effectiveness of the audit committee and the presence of an internal audit function and its relationship with this committee would indicate less opportunity for management to manipulate earnings. Using a sample of 108 non-financial Spanish companies that traded on the Madrid Stock Exchange between 2003 and 2006 (432 observations), we have found that the size and number of meetings of the audit committee had a significant negative association with earnings manipulations. Also, our results suggest that a negative relation between having an internal audit function and earnings management.
Purpose-Anecdotal evidence indicates the internal audit function may be crucial in supporting the implementation of ESG practices and reporting. However, thus far, no study has been empirically conducted to check how and why internal audit function might affect ESG performance. This study aims to address this gap by examining whether the internal audit budget is positively related to the ESG performance of Malaysian listed firms. It also explores whether the sourcing arrangement of the internal audit function can moderate the internal audit budget-ESG nexus.
Design/methodology/approach-The secondary data for the paper is extracted from two main sources, namely, the Thomson Reuters Eikon database and firms' annual reports that were downloaded from the Bursa Malaysia website. The final sample consists of public firms listed on Bursa Malaysia over the period 2010 to 2019. Multivariate tests are used to examine the linkage between the variables.
Findings– The results show that the relationship between the annual internal audit budget and ESG performance is contingent on the sourcing arrangement of the internal audit function. Specifically, the results show that the annual internal audit budget has a positive impact on ESG performance for firms with an inhouse internal audit function but not for firms outsourcing an internal audit function to external providers. Overall, the results suggest that the annual internal audit budget promotes ESG performance for firms performing their internal audit activities internally.
Practical implications– The findings of this paper provide a strong motivation for authorities in Malaysia to develop new policies and rules aiming at ensuring that internal audit departments are adequately resourced to function effectively, thereby promoting corporate ESG performance. Moreover, the findings may be useful in informing the board of directors and other policymakers that establishing an in-house internal audit department assists in advancing corporate sustainability performance.
Social implications– The findings of this paper suggest that investors, creditors and other stakeholders should link ESGreporting withthe attributesof the internal audit function and outsourcing arrangement when evaluating firm performance. The total annual costs allocated to the internal audit function coupled with the outsourcing arrangement by an external provider should be considered for the overall assessment of the ESG performance and provide additional warranty towards corporate goals’ achievement and sustainability for the society.
Originality/value– This study extends previous studies on the determinants of ESG performance by focusing on two crucial aspects of the internal audit function: the annual budget and the outsourcing arrangement, a hitherto largely unexploredmechanism bytheexisting literature.
Purpose
This study examines the effects of board members’ compensation on the voluntary establishment of an internal audit function in publicly listed firms. While previous studies have identified some individual determinants related to the voluntary establishment of an internal audit function, the existing evidence on how board members’ compensation affects voluntary use of internal audit is, at best, ambiguous, scarce and incoherent.
Design/methodology/approach
Board compensation is a central incentive instrument in the classic principal–agent relationship between the owners and board members. The theme is empirically examined by using data compiled from Finnish publicly listed companies for the period 2015 to 2018. Since the dependent variable of the study is a binary variable, the logistic regression method was chosen as the statistical method of the study.
Findings
Our results unequivocally show that generous compensation of the board members increases the likelihood of establishing an internal audit function. Thus, we conclude that good corporate governance can be improved through generous compensation of board members.
Originality/value
Identifying the determinants of internal audit is vital to better understand the mechanisms that facilitate firms' improvement of internal control and risk management in terms of voluntarily adopting an internal audit function, and the implementation of good governance in general. Although numerous determinants of internal audit have been identified in previous studies, this study showed that one of the key determinants has so far been overlooked; namely, the remuneration of board members.
This study explores the measurement of the effectiveness of internal audits from the perception of internal auditors to prevent fraud. It examines the antecedents that affect the effectiveness of internal audits to prevent fraud. This study uses a mixed-method exploratory sequential design approach called instrument development design. This research's unit of analysis is the local government's internal auditor, namely the Financial and Development Supervisory Agency (BPKP), representing the Province of North Sulawesi, and the Inspectorate of the entire Province of North Sulawesi. The data collected were 165 questionnaires, and the analysis technique used PLS. The results of this study, audit effectiveness for fraud prevention is affected by audit quality. Then, the higher the independence of the internal auditor's functions in audit assignment, the better the audit quality, which will increase the effectiveness of internal audit in preventing fraud.
Purpose
In recent decades, managerial desire to use internal audit services to promote well-controlled organizational processes has significantly increased in the public sector. Yet, there is rare information on how internal audits may effectively be implemented in the public sector. The present research aims to design a comprehensive internal audit effectiveness model for the public sector.
Design/methodology/approach
This research is an applied mixed-methods (qualitative–quantitative) and descriptive survey study. The research population in both qualitative and quantitative sections included all internal and external audit managers and staff of Iraqi public organizations. The study sample of the qualitative section included 28 audit managers and staff selected using purposive sampling, and the study sample of the quantitative section included 399 individuals selected using convenience sampling. The data collection instruments in the qualitative and quantitative sections included semi-structured interviews and questionnaires, respectively. Data analysis was carried out using thematic analysis in Atlas.ti software in the qualitative section. Quantitative analysis and model validation were also performed using path analysis and structural equation modeling in Smart-PLS software in the quantitative section.
Findings
The results of the qualitative section led to the identification of 38 effectiveness factors among seven main categories, which were finally presented in the form of a comprehensive model. The main categories included the communication between internal and external auditors, granting independence and authority to internal auditors, providing specialized human resources, providing technological resources, developing management support, strengthening organizational culture and developing audit plans. In the qualitative section, the model was validated and confirmed. Quantitative results further showed that the compilation of audit plans and the development of management support were the most important factors.
Originality/value
The present study contributes to the literature by providing a comprehensive framework on internal audit with an emphasis on resource-based theory and reducing the research gap in the field of agents influencing internal audit efficacy in the public sector of developing countries. Further, the study provides insights into an under-studied developing country, Iraq.
Only a small proportion of companies that announce restatements disclose existing internal control material weaknesses (ICMWs) over financial reporting during misstatement periods. Using a sample of 1,939 restatements related to misstatements between 2003 and 2015, we find that misstatement duration decreases with the disclosure of ICMWs during misstatement periods. Our results are robust to different samples and different measures of the dependent and test variables. We also find that the number of ICMWs disclosed is negatively related to misstatement duration. The disclosure of both entity‐level and process‐level ICMWs is associated with misstatements of shorter duration. Moreover, we find that the negative association between ICMW disclosure frequency and misstatement duration is more salient when restatements are intentional. Despite the negative consequences of reporting existing ICMWs found in prior studies, our results suggest that the disclosure of ICMWs can shorten the duration of misstatement periods leading to more timely improvement in financial reporting. Hence, our evidence provides context and complements prior research suggesting that companies are penalized for disclosing ICMWs. This article is protected by copyright. All rights reserved
This study has carried out a systematic literature review to examine the metrics that have been applied in the prevailing literature to operationalise or quantify the effectiveness of internal auditing, as well as to determine the factors that are thought to have impact on the influence of the internal auditing. With predefined exclusion and inclusion criteria, this research has finally selected a total of 33 primary studies that were published between 2000 and 2019. This study has identified a total of eleven indicators will used to measure the effectiveness of auditing. These indicators have further grouped into two categories: objectively assessed effectiveness; and perceived effectiveness. The indicators in the perceived group have dominance in the prevailing literature, and therefore this study argues that the indicators used for measuring the effectiveness in objective way generally demonstrates the strides assumed by the internal auditors. Additionally, this study has identified a total of twenty factors that have been considered as the influencing factors in terms of the influence of internal audit. These twenty factors have been further grouped into two categories: factors on supply side and factors on demand side.
The main purpose of the paper is to benchmark the ethical behavior of internal auditors in Greece proposing a theoretical framework for 'ethics' based on principles and rules of professional conduct. Furthermore, the paper aims at comparing internal auditors' ethical behavior among the public and private sector, highlighting possible similarities and differences. The quantitative research approach was employed with the use of a well-structured questionnaire. A total of 138 internal auditors from private and public organization participated in this research. They each resolved nine ethical dilemmas based on real-life situations. The internal consistency reliability of the primary data was estimated through Kuder and Richardson formula 21 (KR-21). The results indicate that the majority of internal auditors pose a high level of ethical behavior and also public sector auditors are more compliant with the Code of Ethics than those of private one. Lastly, the divergent answers are not negligible and it is vital to interpret them in a proper sense and not identify them as unethical behavior.
The effectiveness of the internal audit function is important to improve performance in the public sector. This study provides insight into the drivers and measures of internal audit effectiveness. The heads of the internal audit function, senior management of public institutions and chairpersons of the audit committee, within a South African public sector context, responded to a survey based on an extensive review of the internal audit function. Exploratory factor analysis was applied to facilitate the reduction of 92 items into a meaningful number of independent (drivers) and dependent (measures) variables. The result of the study identifies a refined list of drivers and measures of internal audit effectiveness that adds to existing knowledge and presents a foundation for further research.
Purpose – The purpose of the study is to investigate the role of the internal audit function in the public sector entities in Ghana and the factors limiting the effectiveness of internal audit in the sector.
Design/Methodology/Approach – The study collected the data from 120 internal auditors in 40 ministries, departments and agencies (MDAs) through a self-administered questionnaire. A semi-structured interview with a senior manager of the Internal Audit Agency, the oversight body was also carried out as a follow up.
Findings – The scope of internal audit services in the sector is limited to regular audit activities, mainly pre-audit of payment vouchers which take estimated 74% of the average productive audit time. The effectiveness of internal audit in the Ghanaian public sector is hampered by several factors: low professional proficiency of internal auditors; lack of management ownership and support for internal audit activities, lack of budget authority of the internal audit units and weak functioning of audit committees, among others. Some remedial programmes are ongoing.
Research limitations – Inherent in the study result is the limitation associated with non-probability sampling methods because of the use of purposive sampling technique to select the internal auditors and the organisations.
Practical implication – The result of the study may have policy implication for government in the design of programmes for improving the effectiveness of internal audit as an element of public financial management reforms.
Originality/Value – Despite several studies on internal audit effectiveness in the public sector organisations, none relates to Ghana. This study fills the gap.
Managerial utility, 186. — Methods and definitions, 191. — Growth rate of demand, 193. — Imitative products, 197. — The supply
of finance, 199. — The rate of profit, 200. — Completion, 202. — Interpretation, 204. — Maximizing versus satisficing, 207.
This study assesses factors influencing internal audit effectiveness (IAE) in Saudi Arabia. Data were obtained from 203 managers and 239 internal auditors from 79 Saudi Arabian public sector organizations. Multiple regression analysis examines the association between IAE and five principal factors. Results suggest that management support for IAE drives perceived effectiveness of the internal audit function from both management's and the internal auditors’ perspective. Management support is linked to hiring trained and experienced staff, providing sufficient resources, enhancing the relationship with external auditors, and having an independent internal audit department. Saudi Arabia is representative of many developed and developing environments, and its recent tradition of governance and audit is mirrored in countries worldwide. Moreover, its specific cultural traditions involving clan and tribal allegiances, and pervasive and core religious beliefs, characterize the GCC countries, the Arab World generally, and indeed, many other developing countries, irrespective of wealth. Thus, links between management support and internal audit effectiveness are likely generalizable beyond the Saudi public sector context.
From an extended sequence of observations of decision making in three firms, four examples of how management uses expectations in making internal investment decisions are analyzed. The analysis suggests that although expectational data are an important element, they do not enter into the decisions in quite the way anticipated by standard theories of business behavior. In particular, four characteristics of these decisions are discussed: the extent to which resource allocation reflects comparisons of marginal advantages of alternatives; the extent to which search activity is viewed as one of the competitors for internal resources and the nature of search activity in a business organization; the type of computations about alternatives that are made and used in a decision; and the interaction between expectations and personal and subunit preferences.
Agency theory is extensively employed in the accounting literature to explain and predict the appointment and performance of external auditors. Argues that agency theory also provides a useful theoretical framework for the study of the internal auditing function. Proposes that agency theory not only helps to explain and predict the existence of internal audit but that it also helps to explain the role and responsibilities assigned to internal auditors by the organization, and that agency theory predicts how the internal audit function is likely to be affected by organizational change. Concludes that agency theory provides a basis for rich research which can benefit both the academic community and the internal auditing profession.
This paper aims at achieving an overall view regarding the state of the art of internal auditing in large Italian companies. Mainly, it is focused on risk assessment practices and on the execution of a risk‐based approach in the audit process.
The research is based on a survey carried out on the ‘Top100’ companies listed at the Italian Stock Exchange.
Survey results reveal that practices vary significantly among three different models:
A few companies (25%) carry out mainly traditional compliance activities and they generally follow an audit‐cycle approach for the annual audit planning;
In most companies (67%), internal auditors adopt the COSO model and perform mainly operational auditing. Risk‐based approach is applied predominantly at macro level.
Finally, it is possible to identify a very few large companies (8%), in which auditors are applying a risk‐based approach both at macro and micro level.