Antecedents and Internal Audit Quality Implications of Internal Audit Effectiveness

Abstract

Cognizant of the growing importance of internal control as a corporate governance mechanism in organizations, this paper investigates factors that are associated with internal audit effectiveness. Additionally, this paper also investigates the relationship between internal audit effectiveness and internal audit quality. A total of 102 questionnaires were collected from internal auditors and chief audit executives of 12 multinational companies in Malaysia. The data was analyzed through structural equation modeling by using SmartPLS Software 3.0. The findings reveal that management support, interdepartmental coordination and the support and acceptance of auditees were associated with internal audit effectiveness. Conversely, the findings also revealed that independence, objectivity and competence (the three building blocks of internal audit effectiveness) were also related to internal audit quality. The study contributes to the agency theory by highlighting the factors associated with the effectiveness of internal audits and quality audit outcomes to protect the best interest of principals while fulfilling the corporate governance imperative. This study also contributed to the institutional theory by highlighting how proper structures and systems can lead to a culture of governance and internal controls. The study confirmed the significance of interdepartmental coordination and the support and acceptance of auditees towards internal audit effectiveness, the exploration of which remains limited in current literature.

Keywords

• independence
• objectivity
• competency
• internal audit effectiveness
• internal audit quality
• agency theory