The Impact of Internal Audit Quality on Organization Performance
DOI:
https://doi.org/10.46793/Rev25112.077RKeywords:
internal audit, internal audit quality, factors of internal audit quality, organizational performanceAbstract
The quality of internal audit is one of the key factors in the success of modern organizations, as it surpasses the traditional control role and becomes a strategic tool for performance improvement. Its significance lies in enhancing the efficiency and effectiveness of processes, reducing operational and reputational risks, improving the quality of financial reporting, and strengthening the transparency and accountability of management. This paper investigates the impact of internal audit quality on organizational performance based on a sample of 285 respondents from the Republic of Serbia and Bosnia and Herzegovina. Data collected through a standardized questionnaire were analyzed using PLS-SEM methodology, and the results confirm a strong and statistically significant relationship between internal audit quality and organizational performance (β = 0.692; p < 0.001). The findings indicate that nearly half of the variance in performance can be explained by the quality of internal audit, confirming its strategic importance. Special emphasis is placed on the significance of auditor competencies and management support as key prerequisites for realizing the full contribution of internal audit.
References
Abdelrahim, A., & Al-Malkawi, H.-A. N. (2022). The influential factors of internal audit effectiveness: A conceptual model. International Journal of Financial Studies, 10(3), 71. https://www.mdpi.com/2227-7072/10/3/71
Ahmeti, F., Rrustemi, V., & Berisha, V. (2022). Internal audit quality and firm performance: Evidence from insurance companies in Kosovo. Economic Research-Ekonomska Istraživanja, 35(1), 1529–1548.
Alles, M. (2015). Drivers of the use and facilitators and obstacles of the evolution of big data by the audit profession. Accounting Horizons, 29(2), 439–449.
Alzeban, A., & Gwilliam, D. (2014). Factors affecting the internal audit effectiveness: A survey of the Saudi public sector. Journal of International Accounting, Auditing and Taxation, 23(2), 74–86.
Arena, M., & Azzone, G. (2009). Identifying organizational drivers of internal audit effectiveness. International Journal of Auditing, 13(1), 43–60.
Badara, M. S., & Saidin, S. Z. (2013). Impact of the effective internal control system on the internal audit effectiveness at local government level. Journal of Social and Development Sciences, 4(1), 16–23.
Cohen, A., & Sayag, G. (2010). The effectiveness of internal auditing: An empirical examination of its determinants in Israeli organisations. Australian Accounting Review, 20(3), 296–307.
ECIIA – European Confederation of Institutes of Internal Auditing. (2022). The future of internal audit is now. Brussels: ECIIA.
Elbahnasawy, N. G., Elmassri, M., & Fawzy, T. (2022). Internal audit function, audit committee, and financial reporting quality. Journal of Financial Reporting and Accounting, 20(1), 115–135.
Endaya, K. A., & Hanefah, M. M. (2016). Internal auditor characteristics, internal audit effectiveness, and moderating effect of senior management. Journal of Economic and Administrative Sciences, 32(2), 160–176.
Erasmus, L. J., & Coetzee, P. (2018). Drivers of stakeholders’ view of internal audit effectiveness: Management versus audit committee. Managerial Auditing Journal, 33(1), 90–114.
Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2017). A primer on partial least squares structural equation modeling (PLS-SEM) (2nd ed.). Sage Publications.
Hazaea, S., Tabash, M. I., & Hussain, H. I. (2020). Internal audit function and performance of Yemeni commercial banks: Empirical evidence. Cogent Business & Management, 7(1), 1816285.
Henseler, J., Ringle, C. M., & Sinkovics, R. R. (2009). The use of partial least squares path modeling in international marketing. Advances in International Marketing, 20, 277–319.
Institute of Internal Auditors – IIA. (2017). International standards for the professional practice of internal auditing (Standards). https://www.theiia.org/en/standards/
Kai, J., Li, Y., & Wu, L. (2019). Internal audit, corporate governance, and firm performance: Evidence from China. Asian Review of Accounting, 27(1), 112–136.
Lenz, R., & Hahn, U. (2015). A synthesis of empirical internal audit effectiveness literature pointing to new research opportunities. Managerial Auditing Journal, 30(1), 5–33.
Lin, S., Pizzini, M., Vargus, M., & Bardhan, I. (2011). The role of internal audit function in the disclosure of material weaknesses. The Accounting Review, 86(1), 287–323.
Mihret, D. G., & Yismaw, A. W. (2007). Internal audit effectiveness: An Ethiopian public sector case study. Managerial Auditing Journal, 22(5), 470–484.
Munro, L., & Stewart, J. (2011). External auditors’ reliance on internal audit: The impact of sourcing arrangements and consulting activities. Auditing: A Journal of Practice & Theory, 30(3), 79–98.
Navarro-Espinosa, M., Llopis-Albert, C., & Merigó, J. M. (2021). Strategic decision-making, internal auditing and business performance: a PLS-SEM approach. Technological and Economic Development of Economy, 27(2), 250–268. https://doi.org/10.3846/tede.2021.14160
OECD. (2019). Internal audit in the public sector: Key principles and good practices. OECD Publishing. https://www.oecd.org/gov/internal-audit-public-sector.htm
Prawitt, D. F., Smith, J. L., & Wood, D. A. (2009). Internal audit quality and earnings management. The Accounting Review, 84(4), 1255–1280.
Sarens, G., & De Beelde, I. (2006). Internal auditors’ perception about their role in risk management: A comparison between Belgian and US companies. Managerial Auditing Journal, 21(1), 63–80.
Sawyer, L. B., Dittenhofer, M. A., & Scheiner, J. H. (2003). Sawyer’s internal auditing: The practice of modern internal auditing (5th ed.). Institute of Internal Auditors.
Soh, D. S. B., & Martinov-Bennie, N. (2011). The internal audit function: Perceptions of internal audit roles, effectiveness, and evaluation. Managerial Auditing Journal, 26(7), 605–622.
Spraakman, G., O’Grady, W., Askarany, D., & Akroyd, C. (2015). Internal audit, internal control and organizational culture. Managerial Auditing Journal, 30(8/9), 762–786.
Turley, S., & Zaman, M. (2007). Audit committee effectiveness: Informal processes and behavioural effects. Accounting, Auditing & Accountability Journal, 20(5), 765–788.
Wahyudi, S., Maria, S., & Sudarsono, R. (2021). Internal audit quality and organizational performance: Evidence from PLS-SEM analysis. International Journal of Business and Society, 22(1), 1–19.
Zain, M. M., Subramaniam, N., & Stewart, J. (2006). Internal auditors’ assessment of their contribution to financial statement audits: The relation with audit committee and internal audit function characteristics. International Journal of Auditing, 10(1), 1–18.
Zaman, M., Broadhurst, R., & Humphrey, C. (2021). Internal audit and change: exploring institutional perspectives in the UK public sector. Accounting, Auditing & Accountability Journal, 34(5), 1109–1135. https://doi.org/10.1108/AAAJ-04-2019-3980
