Determinants Affecting Internal Audit Effectiveness

Abstract

This study tries to identify the determinants that affect the effectiveness of internal auditing for listed firms in India. A sample of 300 listed companies was drawn. Questionnaires were mailed to the head of audit department, internal audit managers, internal auditor and head of accounts of each company. The overall response rate was 28.3%. The results were derived by applying multiple regression method and the three determinants turned out to be significant. The three determinants are risk-based planning, usage of Big Data and Analytics, and frequency of meetings of internal auditor (IA) with audit committee (AC) respectively. The model explains 42.8% of variations in the dependent variable (IA effectiveness). The study indeed encourages internal auditors to develop their core skills and competencies in the area of risk assessment and Big Data and Analytics for delivering better services to the auditees, the board of directors and the AC members. The implications of these findings may be of importance to internal audit professionals, accounting professional bodies and the regulators. Direction for future research is also provided.

The Factors Influencing the Risk Based Internal Audit in Improving the Effectiveness of Internal Audit

“…The findings of this study do not corroborate the other findings, who show that engaging in a Professional Development programme to improve abilities boosts the effectiveness of Internal Audit (Handoyo & Bayunitri, 2021;Joshi, 2020). Then there's the similar research, which shows a favourable and significant association between top management support and increased internal audit effectiveness (Alzeban & Gwilliam, 2014;Lenz et al, 2014).…”

“…According to previious research, one of the primary predictors of internal audit effectiveness is conformity with professional standards (IPPF) (Lenz & Hahn, 2015;Vadasi & Bekiaris, M., & Andrikopoulos, 2020). Similar research also investigated the relationship between risk-based planning and internal audit effectiveness, discovering a strong positive relationship (Dzikrullah et al, 2020;Joshi, 2020).…”

“…Internal audit is a critical instrument for controlling an organization's governance and operations. Internal audit is in charge of financial control, compliance assurance, and asset protection (Handoyo & Bayunitri, 2021;Joshi, 2020). However, because regulatory bodies' needs, particularly in terms of risk management, have increased, the contemporary internal audit functional area has been more focused on the added value of internal audit from all audit stakeholders (Alzeban & Gwilliam, 2014;Lenz et al, 2014).…”

Designing a Characteristics Effectiveness Model for Internal Audit

“…No statistical confirmation was obtained for H9 (Use of Big Data), as although all questions loaded as expected onto a singular factor, it was not deemed statistically significant in either of the two SEM processes. Therefore, the claims portrayed by Joshi (2020Joshi ( , 2021, Yoon et al (2015) Kaya et al (2018) and Deloitte (2018) could not be corroborated as no statistical conclusions were arrived at. It is interesting to note however that there was 32.4% correlation between factor F4 relating exclusively to this hypothesis and effectiveness ('Measures'), possibly indicating positive influence of Big Data Analytics.…”

“…Big Data is fast becoming an essential factor in the IA function. It is essentially split into five attributes, being the volume (large amount) of data, the velocity (speed) of data, variety of data sources, veracity (integrity) of information and value when turning the data into useful information (Joshi 2020). With the rapid modernisation of technology, auditors are capable of leveraging whole data sets at a substantial scale rather than testing samples, increasing completeness of the testing being carried out, reducing sampling risk.…”