A study of characteristics influencing internal audit effectiveness

Abstract

Purpose: The principal objective of this study is (i) to identify factors/latent constructs deemed to influence internal audit effectiveness, through (ii) identifying variables to be used as measures of effectiveness and (iii) hypothesising which variables have any statistically significant relationship with internal audit effectiveness. The secondary objectives involved exploring the perceptions and viewpoints of internal auditing and providing general recommendations based on the research findings. Design: To achieve the above objectives, a mixed-methods approach to the research was adopted. Questionnaires were remitted to internal auditors (IA) in various countries, with 402 final valid responses. Exploratory factor analysis (EFA) was carried out to identify new latent variables/constructs, with confirmatory factor analysis (CFA) in structural equation modelling (SEM) utilised to confirm these factors. Findings: The EFA process identified 7 latent factors through the responses gathered, with 5 factors being confirmed through SEM. These factors, alongside demographical analysis confirmed the positive influence of 8/16 hypotheses with 3/16 having partial confirmation, 4/16 not achieving any statistically significant evidence and 1/16 having negative influence. Risk Management, IA size, competency, management support, EA and AC cooperation, follow-up process and control environment were all deemed to positively influence IA effectiveness. Independence, objectivity, and standard adherence achieved partial confirmation of their positive influence. Audit quality, Big Data, scope limitations and public/private organisations achieved no statistically significant results on their influence, while outsourcing was deemed to negatively influence effectiveness. Conclusions: The results enable IAUs to coordinate their focus and efforts on the amelioration of the confirmed factors in order to develop further their IA exercises. Implications: This study aims to raise awareness on which characteristics are deemed to influence IA effectiveness, while simultaneously highlighting the significance of the IA function.