Int. Journal of Business Science and Applied Management, Volume 16, Issue 2, 2021

Antecedents and Internal Audit Quality Implications of

Internal Audit Effectiveness

Karpal Singh Dara Singh

Graduate School of Business, Universiti Sains Malaysia

Gelugor, Penang, 11800, Malaysia

email: kirpal005@yahoo.com; karpal@usm.my

Sajitha Ravindran

Graduate School of Business, Universiti Sains Malaysia

Gelugor, Penang, 11800, Malaysia

email: sajitha1512@gmail.com

Yuvaraj Ganesan

Graduate School of Business, Universiti Sains Malaysia

Gelugor, Penang, 11800, Malaysia

email: yuvaraj@usm.my

Ghazanfar Ali Abbasi

Graduate School of Business, Universiti Sains Malaysia

Gelugor, Penang, Malaysia

email: ghazanfar.abbasi@hotmail.co.uk

Hasnah Haron

Faculty of Economics and Muamalat Universiti Sains Islam

Malaysia, Bandar Barunilai, 71800, Nilai, Negeri Sembilan, Malaysia

email: hasnahharon@usim.edu.my

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

Int. Journal of Business Science and Applied Management / Business-and-Management.org

1. INTRODUCTION

Weak governance systems that led to various corporate scandals in the US (i.e. Enron, WorldCom,

Tyco) resulted in the enactment of the Sarbanes-Oxley Act 2002, a leading piece of legislation calling

for increased governance of US listed corporations while exerting a significant influence over corporate

governance systems in countries around the world (AlHares, 2019). The Sarbanes-Oxley Act Section

404 mandates all publicly trading companies in the US to establish internal controls and procedures for

financial reporting and to document, test, and maintain those controls (Marks, 2017). Recently, the

Association of Certified Fraud Examiners (ACFE) reported that there were 2,690 cases of occupational

fraud in 125 countries, leading to confounding losses amounting to more than USD 7 billion, with 42%

of these fraud cases being attributed to the organization’s lack of adequate internal controls (ACFE,

2018). If only the fundamental tenets of internal audits (IA) were applied and internal controls

respected, these companies would not have been exposed to such unnecessary risks. Hence, the

importance of internal controls as a mechanism of corporate governance of which IA is a natural

constituent, cannot be overemphasized.

IA’s role in corporate governance stems from the fact that internal audit establishes the truth,

integrity, and reliability of operational and financial information for decision-making at all levels of

governance (Joksimovic & Ahmed, 2017). In the same vein, the Institute of Internal Auditors (IIA) also

reiterates that internal audit can help organizations achieve their objectives through a systematic and

disciplined approach to evaluating the effectiveness of risk management, control, and governance

processes (IIA, 2020). Internal auditors are expected to detect and report corruption, negligence or

abuse of authority. Such audits are termed compliance audits as they seek to ensure the adherence to

laws, regulations, policies, procedures and organizations’ codes of conduct. Secondly, IA is also an

essential mechanism for assessing an organization’s overall performance or what could be referred to

as an operational audit (Al-Twaijry et al., 2003).

The agency theory generally assumes that principals (owners) may not trust their agents (managers)

due to information asymmetries and opportunistic behaviours (Adams, 1994). Therefore, both internal

and external audits are used as mechanisms by principals to evaluate and control their agents' behaviour

to reinforce trust and align principal-agent interests (Rusted et al., 2013). Standard setters such as the

Association of Chartered Certified Accountants (ACCA) and the IIA have repeatedly stressed the need

for the audit function to be independent and objective to ensure that audits are carried out effectively to

deliver quality audit outcomes. Such is their significance that the very definition of an internal audit by

the IIA states that an internal audit is an independent, objective assurance and advisory practice

intended to add value and enhance organisations' operations (IIA, 2020). Both the ACCA and the IIA

also further stressed that internal auditors must have the required competencies (knowledge and skills)

to carry out their roles effectively. The competency levels of internal auditors will give both the

principals and agents confidence that the internal auditors can carry out their tasks effectively and

professionally (Erasmus & Coetzee, 2018).

Mihret et al. (2010) and Turetken et al. (2019), in their synthesis of relevant IA literature, argued

that compliance with the International Standards for the Professional Practice of Internal Auditing

(ISPPIA) of the IIA could serve as a guideline to measure IA effectiveness and proposed internal

auditor objectivity and proficiency as essential dimensions of IA effectiveness. An IA function that

operates on the ideals of independence, objectivity and proficiency will enable internal auditors to

undertake IA tasks effectively and are therefore regarded as the building blocks of IA effectiveness (Al

Matarneh, 2011; ACCA, 2021; IIA, 2020). Given the fact that research may help to elucidate how IA

can help to align principal-agent interests while at the same time taking guidance from the IIA (an

institution dedicated to IA), this study is informed by both the agency and institutional theories.

Scholars have attempted to investigate the factors related to IA effectiveness and how it can be

measured (AL-Twaijry et al., 2003; Mihret & Yismaw, 2007; Yee et al., 2008; Cohen & Sayag, 2010;

Ahmad et al., 2009). These studies implied that IA may not always be useful, and the antecedents of IA

effectiveness may not have been fully explored as yet. These studies also highlights that IA

effectiveness tends to differ according to the country and organizational dynamics within an IA setting.

However, some of these studies were exploratory (i.e. Cohen & Sayag, 2010; Ahmad et al., 2009) and

all of these studies measured IA effectiveness as a single proxy measure instead of being measured by

several dimensions. IA’s true importance is mostly concealed in the fact that its very presence may be a

motivation for employees and managers to carry out their operations with care and proficiency (Coram

et al., 2008), hence measuring its effectiveness remains a challenge. Since the concept of IA

effectiveness is still vague and under-researched (Alzeban & Sawan, 2013), there is an opportunity for

scholars to continue scrutinizing the subject so as to add new knowledge to the literature (Erasmus &

Coetzee, 2018). Arguably, the factors contributing to the independence, objectivity and competency of

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

IA have received little attention from researchers (Cohen &Sayag, 2010; Mihret et al., 2010; Erasmus

& Coetzee, 2018), more so in the context of developing nations (Alzeban & Gwilliams, 2014).

According to Lenz and Hahn (2015), the impact of IA on specific organizational contexts merits further

research to deepen the understanding of the factors that may restrict or enhance IA’s effectiveness. The

use of different organizational settings, standards and constructs in determining IA effectiveness may

add to the growing body of IA literature (Cohen & Sayag, 2010; Mihret et al., 2010; Anderson, 2003).

Against this background, the research identified three variables (antecedents), management

support, the support and acceptance of auditees and interdepartmental coordination, which will be

tested against IA effectiveness. While prior studies have empirically demonstrated the link between

management support as a driver of IA effectiveness (Cohen &Sayag, 2010; Mihret &Yismaw, 2007;

Alzeban & Gwilliam, 2014), limited studies have attempted specifically to examine the link of

management support with the independence, objectivity and competency of IA. This is substantiated by

Stewart and Subramaniam (2009), who stressed that very little is known about the influence of

management attitudes towards IA objectivity and independence. Conversely, the support and

acceptance of auditees or auditee attributes in IA is yet another variable that is little researched (Mihret

&Yismaw, 2007; Hunziker, 2017). Likewise, interdepartmental coordination, the third variable, has

only been studied by Chaiwong (2012) and Hunziker (2017) in the context of IA to date. In their

synthesis of empirical literature Lens & Hahn (2015) pointed out that auditee attributes and

interdepartmental collaborations in the context of IA is an emerging field of research, which has not

been examined to a great extent - a research gap that the present research seeks to address. Additionally,

the study also examines the role of independence, objectivity and competency in influencing IA quality.

In order to achieve the research objectives, this study collected data from a sample of 12 MNCs in

Malaysia, with 102 respondents working as internal auditors in the IA department, which was analyzed

via SPSS and partial least squares structural equation modelling (PLS-SEM). SPSS was used to analyze

the descriptive statistics, whereas PLS-SEM was used to validate the conceptualized model's proposed

hypotheses. Analysis from PLS-SEM encompasses two stages. Stage one validates the measurement

model by confirming construct reliability, convergent validity and discriminant validity. Once the

measurement model is validated, proposed relationships are validated by running the bootstrapping

procedure, see Abbasi et al. (2021) for details.

It is hoped that the outcomes of this research may add to the body of knowledge by providing

evidence on the relationship between the selected factors, IA effectiveness and internal audit quality

from the perspective of multinational companies (MNC) in a developing country like Malaysia. This

study may also be of value to organizations and institutions, i.e. the IIA. The findings may help to shed

light on the factors associated with effective IA and quality audit outcomes, which will be useful to

managers (agents) tasked with the responsibility of ensuring the effectiveness of their organization’s

internal control systems in meeting shareholder requirements (principals) while addressing the

corporate governance imperative.

2. Literature Review and Hypothesis Development

2.1 Underpinning Theories

This study is theoretically founded on two theories, namely agency theory and institutional theory.

The agency theory suggests that a company consists of a nexus of contracts between the economic

resource owners (principals) and managers (agents), who are responsible for the use and control of

these resources (Jensen & Meckling, 1976). This theory has been used in past auditing related research

(Pilcher et al., 2011; Joksimovic & Ahmed, 2017), as it is concerned with resolving conflicts that may

arise in agency relationships, i.e. between principals (owners of the firm) and the agents (management

and the executives of the firm). The theory deals with two key issues, namely i) the conflict of interest

between the principals and their agents, including the difficulty faced by the principals when verifying

the actions of their agents and ii) the discrepancy in the attitude towards risk between a principal and its

agent. The information asymmetry and conflict of interest that may arise between the agents and the

principal justifies the need for internal and external auditing to resolve agency problems in

organizations. There is also a possibility that the management or its employees (agents) may not act in

the best interest of their principal (as is evident from the various corporate scandals relating to

mismanagement, misappropriation of funds and ethical violations) or what is referred to by Scapens

(1985) as the ‘moral hazard’ problem (Jensen & Meckling, 1976; Adams, 1994). Such a moral hazard

implies that agents may face a dilemma when the pursuit of maximizing their wealth happens at the

expense of the principal's interests (Sarens & Abdoolmohammadi, 2011). On the other hand, due to not

having access to all available information, principals may not be able to decide whether an agent’s acts

are in the firm's best interest, which has been referred to as ‘adverse selection’ by Adams (1994).

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Hence, to reduce the likelihood of problems such as moral hazard and adverse selection, principals

and agents engage in contracting relationships to achieve ‘Pareto-optimality’, where both principals

and agents will incur contracting costs (Scapens, 1985). For instance, to reduce the risk of shirking by

agents (Kren and Krer, 1993), principals will resort to subjecting the firm's financial statements to

external audit scrutiny and incur monitoring costs. On the hand, agents too will incur bonding costs

resulting from the costs associated with instituting IA initiatives to show principals that they are acting

with integrity and consistent with their employment contracts. Doing so will help managers to

safeguard their jobs and salaries. It has been argued that the principal’s expenditures on monitoring

agents' actions are reflected in the agents' salary (Wallace, 1980). Therefore it is in the agents' best

long-term interest to be committed to proper internal control mechanisms, i.e. IA, to avoid the risk of

adverse effects on their employment and salaries by principals (Adams, 1994). Additionally, as agents

are only humans who may be susceptible to their surroundings and greed-driven temptations, the

burden is also on the principals to ensure that their agents manage the organization the best they can

through appropriate corporate governance practices, i.e. internal controls (Rudyanto & Siregar, 2017).

As a governance-related control system mechanism, principals can use IA to monitor their agents’

performance, minimize agency costs, and simultaneously align the interest between agents and

principals (Eisenhardt, 1989; Rusted et al., 2013).

Application of the agency theory to the current research context, i.e. Multinational Companies in

Malaysia (MNC’s), would help enrich our understanding of how the IA function can reduce

information asymmetries between the principals and agents of the 12 selected multinational companies

which are currently incorporated in Malaysia as limited private corporations with headquarters in the

USA (8 MNC’s) and Germany (4 MNC’s). In single-tier systems (i,e. the USA), the audit committee

(AC) plays an instrumental role in establishing appropriate corporate governance practices. As implied

by the Sarbanes Oxley Act, the AC is a permanent committee of the board of directors of US stock

exchange-listed corporations (Eulerich et al., 2015). As for two-tier systems (i.e. Germany, Malaysia)

the IA function is considered the management board's agent and the management board is accountable

for the setting up and maintenance of the IA function (Khan et al., 2020). The management board

assigns the IA function to oversee the board's subordinate bodies, among other responsibilities, and

evaluate the internal control systems. Additionally, the AC supervises the IA function to ensure proper

and effective management of the IA by the executive board (Eulerich et al., 2015).

DiMaggio & Powell’s (1983) institutional theory is also related to the current research endeavour.

This theory explains how organizational structures and practices are formed due to changes brought

about by institutional pressures (Mihret et al., 2010), which has been termed, by DiMaggio & Powell

(1983), institutional isomorphism, which comes in three forms: coercive, mimetic and normative

isomorphisms. The theory underlines the value of organizational structures regarding compliance to

rules, regulatory enforcement and social accountability. Under this premise, the board of directors will

have to establish linkages between the organization and the external environment and secondly support

the internal audit function to monitor and evaluate the management and administrative procedures that

lead to organizational performance (Joksimovic & Ahmed, 2017). Past research of Al-Twaijry et al.

(2003) implies that government influence (coercive isomorphism) tends to be more significant in IA

practices in some countries as compared to responses towards uncertainties, risks and environmental

forces (mimetic isomorphism). The rise in accounting and audit professionals (normative isomorphism)

is also said to positively impact the cause of IA in organizations (Al-Twaijiry et al. 2003, Yee et al.,

2008). Prior research has validated the use of institutional theory in IA related research (Al-Twaijry et

al., 2003; Mihret et al., 2010; Arena & Azzone, 2007; Joksimovic & Ahmed, 2017).

Combining both these theories will help the boards of directors and the management to better

understand their roles, responsibilities, and obligations relating to IA as an integral component of

corporate governance. While the agency theory encourages boards to improve organisation

performance through corporate governance and accountability principles, the institutional theory

stresses the value of administrative procedures and compliance with regulatory requirements to

improve organizational efficiency and governance.

2.2 Internal Audit Effectiveness

Prior research in the area of IA effectiveness seems to suggest that the extent of IA effectiveness

tends to vary according to national differences and organization-specific dynamics prevalent within IA

settings (AL-Twaijry et al., 2003; Mihret &Yismaw, 2007; Yee et al., 2008; Cohen & Sayag, 2010;

Ahmad et al., 2009). Cohen & Sayag (2010) undertook an exploratory study to investigate the factors

that contributed towards IA effectiveness and developed a scale for all independent variables

(consisting of the public vs private sector, quality of audit work, management support, proficiency of

internal auditors, organizational independence and career advancement) and a dependent variable, i.e.

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

IA effectiveness. A total of 37 items subjected to exploratory factor evaluations were used to measure

IA effectiveness with three interpretable factors (i.e. audit quality, internal auditee evaluation and the

added contribution of IA towards the organization). After collecting and analysing the data from 108

Israeli organizations, the study reports that all the scales' psychometric properties were acceptable.

However, based on the regression analysis, only top management support, quality of audit work and

organizational independence were positively associated with IA effectiveness.

In another exploratory study, Ahmad et al. (2009) investigated the factors that could lead to IA

effectiveness via open-ended questionnaires directed to public sector employees performing IA roles

from various government agencies in Malaysia. Two open-ended questions were posed: the problems

associated with the IA function and important factors that contributed to IA effectiveness. Based on 99

responses, the study found that the respondents perceived internal audit quality, cooperation of internal

auditors, top management support, adequate resources and the interaction with the audit committee as

the factors that are important for internal audits to be effective. However, the study's simplistic and

descriptive nature did not go far enough in explaining the relationship between specific factors and IA

effectiveness.

Drawing on a case study of a large public higher educational institution in Ethiopia, Mihret and

Yismaw (2007) highlighted the factors that had a bearing on IA effectiveness. Based on primary data

collected from audit personnel and an interview with the IA director via a case study protocol, the study

found that only the quality of IA and management support had a strong influence over IA effectiveness.

Simultaneously, the organizational setting and auditor attributes did not exert a substantial impact on

IA effectiveness. The study also highlighted the need for the audit office to enhance the audit

personnel’s technical proficiency in order to foster audit effectiveness whilst reducing staff turnover.

On the other hand, Al- Twaijry et al. (2003) explored the IA practices of Saudi Arabian companies

from an institutional theory perspective based on a sample of 135 companies listed on the Saudi Stock

Exchange. Utilizing questionnaires and interviews to assess the extent of the compliance of IA practice

with ISPPIA standards, the study found a low level of IA effectiveness and IA's value-adding capacity

in Saudi Arabia. IA was merely utilized to assess financial record keeping and information reliability,

compliance with rules and regulations, and evaluation of internal control mechanisms in organizations.

The study also revealed a low level of auditee cooperation, consequently leading to poor IA

recommendations. The study also implied that IA practices in Saudi Arabia might sometimes not be in

line with ISPPIA standards. Hence, the establishment of the IIA chapter in Saudi Arabia may exert a

normative isomorphic pressure for the compliance and further development of IA.

Yee et al. (2008) looked at IA in Singapore from a slightly different viewpoint. The study focused

on Singaporean Managers' perceptions of IA practices and assessed whether IA is regarded as a partner

of the management or as a routine enforcement watchdog. They argued that while IA's importance in

organizations is growing, the IA function can play a value-adding role in organizations by enlarging the

scope of its services to include operational areas. The study utilized structured interviews from 83

Singaporean senior, middle and junior managers who are IA customers from 25 organizations.

Contrary to the results of Al-Twaijry et al. (2003), Yee et al. (2008) found that Managers at the senior

levels were generally pleased with the proficiency and services of internal auditors. The authors

attributed their findings to the well established corporate sector and a relatively healthy external

auditing environment in Singapore. Therefore Singapore’s internal auditors’ expertise and knowledge

mean that they are better able to deliver value-adding benefits deriving from IA practices than those in

Saudi Arabia.

Beckmerhagen et al. (2004) argued that in order to measure IA effectiveness adequately, the

evaluation must not be only done on results of the audit against the planned objectives, but also the

audit process itself (planning, execution to reporting and follow-up) and the resources that are required

to carry out effective audit (which consist of internal auditors who are competent, independent and

objective). This argument ties in with the approach of Sawyer (1995), who emphasized the need for

audit practices to be benchmarked against specific universally accepted standards and suggested five

standards for internal auditing comprising interdependence, proficiency, the scope of the work, the

performance of the audit and the management of the audit department. On the other hand, Albrecht et

al. (1988) argued that IA effectiveness is not a ‘computable reality’ but is somewhat dependent on the

subjective judgments assigned to this function by the management. Put simply, this meant that IA could

only be measured against the expectations of key stakeholders, some of whom are government

regulators (coercive isomorphism) and investors or owners (principals). In keeping with the approach

of Sawyer (1995) and Al-Twaijry et al. (2003), whose research was based on the compliance of ISSPIA

standards, the present research also adopts the ISSPIA standards, which arguably offers a reliable

approach to measuring IA effectiveness (Mihret et al., 2010; Turetken et al., 2019). This approach

measures IA effectiveness in several dimensions (i.e. independence, objectivity and competency)

Int. Journal of Business Science and Applied Management / Business-and-Management.org

instead of using a single proxy measure adopted in past research (i.e. Cohen & Sayag, 2010; Mihret &

Yismaw, 2007; Al-Twaijry, 2003). The literature relating to these dimensions is discussed in the

following section.

2.3 Independence, Objectivity and Competence (The Building Blocks of IA Effectiveness)

The effectiveness of the IA is contingent upon independence, objectivity, and the competence of

internal auditors. Fulfilment of these three criteria is considered the cornerstone of effective internal

audit as the degree of quality in determining and reporting abnormalities and breaches depends on the

proficiency, independence and objectivity of IA (Al Matarneh, 2011). According to Cohen and Sayag

(2010), organizational independence will raise IA’s efficiency and reduce conflict amid faithfulness to

the company and faithfulness to specific managers and it gives internal auditors a supportive work

atmosphere. Moreover, the independence of internal auditors increases the independence of the IA

function. The IIA affirms that "without independence," "the desired results of internal auditing cannot

be realized”. The IIA’s International Standards for the Professional Practice of Internal Audit (ISPPIA)

clearly defines in section 1110.A1 that independence means “the internal audit activity must be free

from interference in determining the scope of internal auditing, performing work, and communicating

results. The chief audit executive must disclose such interference to the board and discuss the

implications” (IIA, 2016). Put simply, independence means that IA's work is free from any form of

interference (Emmanuel et al., 2013). Both Cohen &Sayag (2010) and Alzeban & Gwilliam (2014)

concluded that independence is an essential prerequisite of IA effectiveness.

According to Dellai and Omri, (2016), the independence and objectivity of internal auditing have

a positive effect on increasing IA effectiveness. Objectivity is necessary for any professional

responsible for providing professional judgment, without which the judgment loses its value and

meaningfulness. In the IA context, the need for objectivity cannot be overemphasized since the

management, as the users of audit services, depend in part on the internal auditor’s opinion when

making important decisions. This view is corroborated by Schneider (2003): objectivity is a crucial

ingredient of IA effectiveness to ensure reliable and valid outcomes. In this regard, the ISPPIA

standard has also specified the need for internal auditors to be objective and that “the internal auditors

must maintain an impartial, unbiased attitude and avoid any conflict of interest” (IIA, 2016, Sec. 1120)

in the course of carrying out their duties. According to Mucthler (2003), seven factors can affect

internal auditors’ objectivity: self-reviews, economic interest, personal relationships, familiarity,

cultural, racial and gender biases and cognitive biases. While most studies relating to IA effectiveness

tested independence and objectivity as a single factor, the study of Fadzil et al. (2005) tested objectivity

separately from independence and found that objectivity was positively associated with the monitoring

aspect of such internal control systems.

Prior studies have also stressed the need for auditors to be appropriately qualified to carry out IA

work effectively. Auditors' competence is also potentially relevant and essential in ensuring that the IA

exercise is carried out effectively (Al-Twaijry, 2003). Standard setters consistently highlight the

importance of internal auditors who possess the right knowledge, skills, and other competencies

necessary to undertake IA duties and responsibilities (IIA, 2006). The ISSPIA standards (1210-

Proficiency) also specify the need for internal auditors to possess the knowledge, skills and

competencies to carry out audits effectively (IIA, 2016, Sec. 1210). The studies of Ali et al. (2007) and

Ahmed et al. (2009) found that a lack of qualified personnel in terms of having sufficient IA training,

experience and knowledge had a negative impact on the work of internal auditors and suggested

training as a prerequisite for enhancing IA work. The IA team needs to have the ability to deliver high-

quality services. Mihret et al. (2010) suggest that both technical and ongoing training are considered

essential to the IA team's effectiveness. Internal auditors need professional skills, adequate education

and experience to carry out their duties and responsibilities well (Pickett and Spencer, 2010).

According to Arena and Azone (2009), the competency of the auditor consists of two factors:

knowledge and behaviour. This was echoed by the findings from the Global Internal Audit Survey

carried out by the IIA confirming that knowledge, behavioural skills and technical skills are essential

competencies required by Chief Audit Executives (CAE) and internal auditors (IIA, 2010). Past studies

have confirmed auditors' need to have the required knowledge and skillset to carry out audit work

effectively (Fadzil et al., 2005; Alzeban and Gwilliam, 2014; Hunziker, 2015).

2.4 Management Support

Management is beginning to rely on IA as an internal control mechanism for checks and balances

purposes while ensuring that it is working effectively (Mahzan et al., 2012). According to Cohen and

Sayag (2010), internal auditors can obtain adequate resources to carry out their duties and tasks, and the

IA department can hire capable staff and provide ongoing training and improvement when there is top

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

management support. The absence of management’s backing undesirably affects the IA performance,

particularly the behaviour of auditees who may not take the audit exercise seriously (Mihret and

Yismaw 2007). Conversely, a management team that fails to exercise the internal auditors’ suggestions

can reduce the efficiency of the IA team (Van Peursem, 2005). In a study within the Malaysian public

sector, management support was the second most crucial determinant of IA effectiveness, after

sufficient auditing staff (Ahmed et al., 2009). In a relatively recent study, Alqudah et al. (2019) found

that top management empowerment towards internal auditors positively impacted internal auditors'

effectiveness in carrying out IA within Jordanian public sector organizations. Several studies have

confirmed that management support is a significant predictor of IA effectiveness (Dittenhofer, 2001;

Mihret & Yismaw, 2007; Cohen & Sayag, 2010; Alzeban & Gwilliam, 2014). However, Stewart and

Subramaniam (2009) found that research on senior management's effect on IA objectivity and

independence is under-scored. Therefore, it is hypothesized that:

H1a: There is a positive relationship between management support and the independence of

internal audit.

H1b: There is a positive relationship between management support and the objectivity of internal

audit.

H1c: There is a positive relationship between management support and the competence of internal

audit.

2.5 Support and Acceptance from Auditees

Gaining the support and acceptance from auditees is critical to the achievement of audit objectives.

This construct means that all auditees are fully aware of the auditors' role and are cooperative during

the IA exercise. According to Yismaw and Mihret (2007), auditors are obligated to have full open

access to entire events, records and possessions, and must be given support and cooperation by auditees

to realize efficient audit work. The extent and level of cooperation influence the extent to which IA

achieves its objectives (Al-Twaijry et al.,2003). The study of Chaiwong (2012) found that

understanding and accepting auditees was a precursor to internal audit performance. Similarly,

Hunziker (2017) found that auditee attributes were an essential predictor of efficient internal control

systems in organizations. This research posits that the greater the support and acceptance of the

auditees towards the auditors and the whole IA process, the more independent, objective, and

competent the IA process will be. Given the fact that this factor is still under-examined the research

postulates the following hypotheses:

H2a: There is a positive relationship between support & acceptance from auditees and the

independence of internal audit.

H2b: There is a positive relationship between support & acceptance from auditees and the

objectivity of internal audit.

H2c: There is a positive relationship between support & acceptance from auditees and the

competence of internal audit.

2.6 Interdepartmental Coordination

Coordination and collaboration between internal auditors and other departments are vital to the

audit task and process. The joint preparation and sharing of information, opinions and reports to

support higher-quality audits and avoid excessive duplication of work are some instances of

synchronization and collaboration. The information delivered by other departments provides a better

audit view and probably one provided with greater resource effectiveness in conditions where the

internal auditor can rely on work carried out by other departments. With the exception of Chaiwong’s

(2012) research confirming that IA performance hinges on the relationship between the IA and other

departments, very little is known about the significance of this relationship in practice. A recent study

by Hunziker (2017) found that inter-departmental coordination between internal auditors and other

departments was positively related to Swiss companies' internal control efficiency. Conversely, Lenz &

Hahn (2015) argued that since not much is known about the effect of interdepartmental collaborations

in the context of IA as it has not been examined to a great extent, it is an emerging field of research that

is worthy of pursuit. Hence this research posits that:

H3a: There is a positive relationship between interdepartmental coordination and the

independence of internal audit.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

H3b: There is a positive relationship between interdepartmental coordination and the objectivity

of internal audit.

H3c: There is a positive relationship between interdepartmental coordination and the competence

of internal audit.

2.7 Independence, Objectivity, Competence and Internal Audit Quality

There is no agreed-upon definition of audit quality in either the internal or the external auditing

literature. Regardless of whether it is internal or external, audit quality has been defined as the capacity

to realize and report abnormalities and breaches; the latter is the most noticeable indicator of audit

quality (Daniels& Booker, 2011; Butcher et al., 2013). The degree of quality in determining and

reporting abnormalities and breaches depends on IA's proficiency, independence, and objectivity (Al

Matarneh, 2011). On a different note, hopes from a proper IA function encompass controlling the

efficiency and effectiveness of operations, the degree of achievement of compliance in regulations and

internal procedures, the reliability of financial reporting and the preservation of assets (Hayes et al.,

2015). As noted by Cohen and Sayag (2010), IA quality should include the level of compliance with

IIA standards, the ability to plan the audit, execute audit findings and communicate them.

Conversely in research involving 240 listed firms in Greece, George et al. (2015), having reviewed

the literature of IIA, Cohen and Sayag (2010), Bota-Avram and Palfi (2009) and Alzeban & Gwilliam,

(2014) pointed out that internal quality audit is characterized by the accomplishment of IA objectives,

communication between internal and external auditors, the efficiency of the internal auditor’s work, an

appropriate justification of the internal auditor’s findings, the significance of the internal auditor’s

recommendations and the rationality of the internal auditor’s report. Past research has confirmed that

independence, objectivity, and competence are prerequisites of IA quality (Abbott et al., 2016; Alzeban

and Gwilliams, 2014; Cohen and Sayag, 2010). Research has also established that the lack of

independence and objectivity can compromise audit outcomes in terms of bias in evidence collection,

evaluation, audit recommendations and reporting (Mustika, 2015). Independence, objectivity, technical

competence and qualified internal auditors are vital ingredients of good corporate governance (Basel

Committee, 2012). The study of Fadzil et al. (2005) also found that professional proficiency,

objectivity, and independence significantly influenced internal control systems' quality. This study,

therefore, hypothesizes that:

H4a: There is a positive and significant relationship between the independence of IA and internal

audit quality.

H4b: There is a positive and significant relationship between IA's objectivity and internal audit

quality.

H4c: There is a positive and significant relationship between the competence of IA and internal

audit quality.

Figure 1. Proposed Research Framework

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

3. METHODS

3.1 Sample Population

In deciding on an acceptable sample size for this study, Roscoe’s (1975) rule of thumb suggests

that the minimum sample ought to be a minimum of ten times the number of variables. Since the

research had a total of 7 variables, the minimum sample size required was 70 respondents. Twelve

MNC’s operating in the free industrial zone (FIZ) of Penang were randomly chosen based on the

Federation of Malaysian Manufacturers (FMM) Directory of Malaysian Industries 2017. A total of 180

self – administered questionnaires were distributed to the 12 selected MNCs' IA department. The

researchers were granted access to the IA departments by the selected MNC’s on the condition of

anonymity and the questionnaires were distributed using a drop and pick method, allowing the

respondents to complete the questionnaires at their own pace. Only a total of 102 usable responses were

obtained and were fully answered. The low response rate could be attributed to the low number of

auditors, averaging between 5 in smaller companies and an average of 12 auditors in bigger MNCs.

These MNC’s were all incorporated in Malaysia as limited private corporations or known locally

as ‘Sendirian Berhad' and hence were subjected to the standard audit requirements imposed by the

Companies Commission of Malaysia and the Inland Revenue Board of Malaysia. These MNC’s need to

have their accounts audited on an annual basis by a Ministry of Finance approved external company

auditor, who must be a member of the Malaysian Institute of Accountants. Although MNC’s that are

incorporated as private limited corporations are not subjected to the regulatory requirements of the

Securities Commission of Malaysia and the Malaysian Code of Corporate Governance, which are

applicable to Public Limited Corporations, most MNC’s as a matter of good practice and to fulfil

parent country requirements have sound mechanisms of internal control and risk management in the

form of Internal Audit Departments to continuously monitor and evaluate risk and promote a culture of

best practice and continuous improvement. Out of the 12 MNC’s that were randomly chosen, eight

were headquartered in the USA, which uses a one-tier board structure, and four were headquartered in

Germany, which follows a two-tier board structure (Khan et al., 2020). The demographic profile of the

respondents is presented in table 1 below:

Table 1. Demographic Profile of Respondents

Demographics

Characteristics

Frequency

Percentage

Gender

Male

Female

Age

21 – 25

3.9

26 - 30

21.5

31 – 35

36.2

36 – 40

20.5

>40

17.9

Tertiary Qualification

(excluding

professional

membership)

Certificate / Diploma

4.9

Bachelor’s degree

52.0

Post Graduate

41.0

None

1.9

Professional

Designation

MICPA

2.9

ACCA

21.5

CPA

18.6

CIA

43.1

CIMA

9.8

None

4.1

Current Position

Manager of IAD

11.7

Senior Auditor

60.7

Junior Auditor

27.4

Audit Experience

< 1 year

0.9

1 – 5 years

25.4

6 – 10 years

49.0

11 – 15 years

17.6

16 – 20 years

3.9

>20 years

0.9

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Table 1 above shows the demographic profile of the respondents. The overall distribution of males

and females were 44% and 56% respectively, with a slightly higher percentage of females employed in

the selected MNCs' IA departments. The age range of the respondents was from 21 years to over 40

years of age. The majority of the respondents were 35 years and below (61.6%), while those who were

36 to 40 years and above cumulatively accounted for 38.4% of the respondents. A considerable

majority had tertiary qualifications, except for two respondents who did not have any formal tertiary

qualifications, indicating MNC’s preference for internal auditors with academic qualifications. In terms

of professional designations, only four respondents were not affiliated with any accounting or auditing

related professional bodies. A vast majority of the respondents (98 of them) had professional

designations, and 44 respondents had the Certified Internal Auditors (CIA) designation by the IIA of

Malaysia. In terms of the respondents' current position in their respective IA departments, 11.7% were

Managers of the IA departments, 60.7% were senior auditors, and the remaining 27.4% were junior

auditors. In terms of audit experience, a vast majority of the respondents (73) had more than six years

of working experience in an audit-related setting while only 27 respondents had less than five years of

audit-related working experience.

3.2 Measures

To test the hypotheses presented, a survey instrument was designed in the form of a questionnaire

which had two sections, namely ‘Section A’, which included 6 demographic items, and ‘Section B’,

which comprised 32 items representing the constructs in the study. The questionnaires were anchored

on a five-point Likert-scale ranging from (1) strongly disagree to (5) strongly agree. Measurement

items should characterize the concepts about which valid generalizations are to be made in order to

fulfil content validity (Bohmstedt, 1970). All the measurement scales were adapted from previously

published studies as follows:

Management support (MS) was measured using a five-item scale adapted from Alzeban &

Gwilliam (2014). The items are: MS1 – “The top management provides support and encouragement to

the audit team to perform its duties and responsibilities.” MS2 – “Management is aware of the internal

audit department's needs and provides required resources”. MS3 – “The management is involved in

planning the internal audit.” MS4 – “Reports on the internal audit team's work is being delivered to the

management”. MS5 – “The management responds to the internal audit reports”.

Support and acceptance of auditee (SAA) were measured by adapting Yismaw & Mihret’s (2007)

two-item, scale which is made up of: SAA1 – “The auditees are supportive by giving ease of access to

required records and activities in all units audited.” SAA2 – “The auditee gives a good level of

cooperation to the auditors in achieving IA objectives.”

Interdepartmental Coordination (IC) was measured using a four-item scale adapted from Hunziker

(2017). The scale measured the coordination of tasks and employees from different departments in the

internal audit exercise. The items include IC1 – “All employees involved in the internal audit activity

operate in a coordinated manner.” IC2 – “It is important to coordinate internal audit tasks in such a

manner that internal auditing objectives can be achieved easily.” IC3 – “There are no

misunderstandings regarding the responsibility of internal audit tasks.” IC4 – “It is easy to maintain a

comprehensive view of all internal audit activities.”

Independence; the scale to measure independence was adapted from Cohen & Sayag (2010). The

eight-item scale is made up of: IND1 – “The IA operates independently and can audit any issue it

considers in need of auditing.” IND2 – “The IA can access any necessary information even if it is

classified.” IND3 – “The IA team is rotated so that they can cover a variety of assignments.” IND4 –

“The CAE have a functional reporting relationship with the board of directors.” IND5 – “The CAE

have regular and direct working relations with the general manager and the managerial team.” IND6 –

“Terminating the work of the auditor requires the approval of the IA committee and or the board of

directors.” IND 7 – “All organizational data pools can be downloaded and examined by the IA.” IND 8

– “The IA sometimes take part in designing organizational systems and procedures for regulating their

procedures”.

Objectivity: the scale to measure objectivity was adapted from Fadzil et al. (2005), developed

based on ISPPIA standards. The three-item scale is made up of: OBJ1 – “The internal auditors are not

assigned to areas where close friends or relatives are employees to avoid conflict of interest.” OBJ2 –

“Internal audit activities should be free from any form of interference”. OBJ3 – “Internal auditors must

maintain an impartial and unbiased attitude when carrying out their duties”.

Competency (COMP) was measured using a scale adapted from Alzeban & Gwilliam (2014). The

four-item scale includes: COMP1 – “Internal auditors should have appropriate academic

qualifications.” COMP2 – “Internal auditors should have professional internal audit qualifications.”

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

COMP3 – “Internal auditors should be committed to continuous professional development.” COMP4 –

“Internal auditors should have some work experience in the field of internal audit.”

Finally, the outcome variable, quality of internal audit (IAQ), was measured using a six-item scale

which was adopted from Cohen and Sayag (2010). The items include: IAQ1 – “The annual audit plan is

determined completely by the internal auditor.” IAQ2 – “The areas audited are very significant to the

organization.” IAQ3 – “The IA can cover all organizational units and all issues.” IAQ4 – “The

response of auditees to the audit is submitted in writing and is relevant and comprehensive.” IAQ5 –

“There is a regular follow-up by the IA staff to examine actions taken to correct the problems found.”

IAQ6 – “The internal auditor also performs other activities such as developing procedures and

conducting economic and financial audits.” See table 2 for details.

Table 2. Measurement Model Assessment

Construct Source

Outer

VIF

Items

Loadin

CR AVE

Management

Support (MS)

Alzeban&

Gwilliams,

(2014)

2.645

The top management provides

support and encouragement to the

audit team to perform its duties and

responsibilities

0.815

0.89 0.62

2.748

Management is aware of the needs of

IAD and provides required resources

0.83

2.396

The management is involved in

planning the internal audit

0.893

1.591

Reports on the work of the internal

audit team is being delivered to the

management

0.69

1.914

The management provides responses

to the internal audit reports

0.687

Support and

acceptance of

auditee (SAA)

Yismaw&Mi

hret’s (2007)

1.766

The auditees are supportive by giving

ease of access to required records and

activities in all units audited

0.91

0.905 0.827

1.27

Good level of cooperation is given by

the auditee to the auditors in

achieving IA objectives.

0.908

Interdepartmental

Coordination (IC)

Hunziker

(2017)

1.899

All employees involved in the

internal audit activity operate in a

coordinated manner

0.841

0.858 0.62

2.765

It is important to coordinate internal

audit tasks in such a manner that

internal auditing objectives can be

achieved easily

0.905

2.532

There are no misunderstandings

regarding the responsibility of

internal audit tasks

0.899

1.21

It is easy to maintain a comprehensive

view of all internal audit activities

0.671

Independence

(IND)

Cohen

&Sayag

(2010)

1.786

The IA operates totally independently

and can audit any issue it considers in

need of auditing

0.847

0.93 0.624

1.58

The IA can access any necessary

information even if it is classified

0.773

1.476

The IA team is rotated so that they

can cover a variety of assignments

0.803

1.454

The CAE have functional reporting

relationship with the board of

directors

0.719

1.863

The CAE have regular and direct

working relations with the general

manager and the managerial team

0.736

1.238

Terminating the work of the auditor

requires the approval of the IA

committee and or the board of

directors

0.776

1.656

All organizational data pools can be

downloaded and examined by the IA

0.84

Int. Journal of Business Science and Applied Management / Business-and-Management.org

1.476

The IA sometimes take part in

designing organizational systems and

procedures for regulating their

procedures

0.815

Objectivity (OBJ)

Fadzil et al.

(2005)

2.39

The internal auditors are not assigned

to areas where close friends or

relatives are employees to avoid

conflict of interest

0.866

0.848 0.651

2.419

Internal audit activities should be free

from any form of interference

0.808

3.507

Internal auditors must maintain an

impartial and unbiased attitude when

carrying out their duties

0.741

Competency

(COMP)

Alzeban &

Gwilliams,

(2014)

2.695

Internal auditors should have

appropriate academic qualifications

0.828

0.841 0.571

3.597

Internal auditors should have

professional internal audit

qualifications

0.721

2.617

Internal auditors should be committed

to continuous professional

development

0.747

2.11

Internal auditors should have some

work experience in the field of

internal audit

0.722

Internal Audit

Quality (IAQ)

Cohen &

Sayag (2010)

3.39

The annual audit plan is determined

completely by the internal auditor

0.853

0.912 0.646

4.6

The areas audited are very significant

to the organization

0.911

2.712

The IA is able to cover all

organizational units and all issues

0.865

2.72

The response of auditees to the audit

is submitted in writing and is relevant

and comprehensive

0.822

3.254

There is regular follow-up by the IA

staff to examine actions taken to

correct the problems found

0.875

3.39

The internal auditor also performs

other activities such asdeveloping

procedures and conducting economic

and financial audits

0.357

3.3 Common Method Bias (CMB) & Multicollinearity

Podsakoff et al. (2003) posited that survey-based studies tend to common method bias. In relation

to this Podsakoff et al. (2003) suggested taking both procedural and statistical remedies to address such

issues. Thereby, this research took all the measures as a procedural remedy. Statistically, the

researchers applied several measures to take account of the common method variance. According to the

Harman single factor, the results revealed that this study has no CMB related issues as the single factor

variance extracted was less than the threshold values of 50%, recommended by Podsakoff et al. (2003).

Furthermore, the inner variation inflated factor (VIF) and the findings also reveal that all the Inner VIF

values are less than 3.3 suggested by Kock (2015), ranging from 1.269 to 2.057. Hence, based on the

above findings, it can be concluded that the study is free of common method bias.

Furthermore, to investigate the multicollinearity, the researcher applied the outer VIF criterion.

According to Mason and Perreault (1991) and Shieh (2010), a study will have multicollinearity related

issues when the outer VIF values are more than 10. Thereby, according to the findings of this study, all

the values mentioned in table 1 are in line with the guidelines prescribed by the researchers. Therefore,

the study was found to have no multicollinearity related issues.

3.4 Data Analysis

The data were analyzed using partial least squares structured equation modelling (PLS-SEM) via

the SmartPLS 3.2.9 software in order to uncover the direct effects of the antecedents on IA

effectiveness and its subsequent, direct effect on the outcome variable, internal audit quality.

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

4. FINDINGS

4.1 Measurement Model

As the first step, the model's convergent validity and reliability were analyzed by assessing the

factor loadings, Average Variance Extracted (AVE), and Composite Reliability (CR). Table 1 presents

the measurement model; the factor loadings satisfy the recommended value of more than 0.6 (Hair et

al., 2019; Keong et al., 2020). The AVE value of all the sevenvariables was in the range of 0.571 to

0.827, which satisfies the recommended value of more than 0.50. The CR ranging from 0.841 to 0.93

also satisfies the requirements as it is greater than the recommended value of more than 0.70 (Hair et al.,

2019).

Table 3. Heterotrait-Monotrait Ratio (HTMT) ratios

MEAN SD COMP IC IND MS OBJ IAQ SAA

COMP 4.38 0.60

IC 4.19 0.53 0.341

IND 3.64 1.36 0.354 0.559

MS 4.28 0.49 0.325 0.764 0.519

OBJ 4.33 0.56 0.475 0.404 0.58 0.51

IAQ 3.88 0.60 0.321 0.456 0.432 0.52 0.451

SAA 4.27 0.47 0.458 0.687 0.702 0.753 0.716 0.633

The model's discriminant validity was tested by examining the correlations between the potentially

overlapping construct measures, following the Heterotrait-Monotrait Ratio (HTMT). It is found from

Table 3 that all the HTMT values of the constructs are below 0.86, which fulfils the criterion of HTMT

0.85 by Henseler et al. (2015). These results suggest that the required discriminant validity for the

research model has been achieved. Overall, the measurement models have shown adequate reliability

and validity; thus, the research is fit to pursue the structural model assessment to test the hypotheses.

4.2 Structural Model

In PLS, R² calculates the determination coefficient and the path coefficient level of significance

(beta value). According to Hair, Ringle & Sarstedt (2011), this is an important evaluation to investigate

the structural model's goodness. After assessing the validity of the measurement model, the study tested

the hypotheses using the structural model. The research model’s explained variance (R

) value was

0.305, indicating that the model can explain 30.5% of the variance in IA quality associated with IA

effectiveness. The R

for internal audit effectiveness, which are independence, objectivity and

competence, are 0.45.6 (45.6%), 0.344 (34.4%), 0.158 (15.8%) respectively. Findings also revealed the

study has satisfactory predictive relevance (Q

), which was found to be more than 0 for all the

endogenous variables, i.e. QIA (0.18), IND (0.269), OBJ (0.211) and COMP (0.052).

Table 4. Path coefficients and hypotheses testing

Hypotheses

Relationship

Beta

Std error

P-values

Decision

MS IND

0.193

0.101

0.028*

supported

MS OBJ

0.404

0.091

0.000**

supported

MS COMP

0.257

0.127

0.022*

supported

SAA IND

0.054

0.084

0.021*

supported

SAA OBJ

0.126

0.105

0.015*

supported

SAA COMP

-0.121

0.119

0.154

not supported

IC IND

0.371

0.134

0.003*

supported

IC OBJ

0.201

0.111

0.035*

supported

IC COMP

0.350

0.136

0.005*

supported

IND IAQ

0.156

0.109

0.037*

supported

OBJ IAQ

0.002

0.119

0.042*

supported

COMP IAQ

0.293

0.128

0.011*

supported

Notes: *p<0.05, **p<0.01 (One-tailed)

Int. Journal of Business Science and Applied Management / Business-and-Management.org

The structural model's path coefficient signifies the hypothesized relationship between the

variables studied (Hair et al., 2019). Path coefficients of the structural model were measured, and then

bootstrap analysis (re-sampling = 5000) was executed to evaluate the statistical significance of the path

coefficient in this study. Table 4 illustrates the results of the hypothesis testing. The results revealed

that only one was not significant out of the twelve hypotheses under the direct hypothesis section.

Management support was positively related to IA effectiveness; hence, H1a – H1c was supported.

Conversely support and acceptance of auditees showed a significant positive relationship with

independence and objectivity, supporting H2a and H2b. However, support and acceptance of auditees

were negatively related to competence, thereby rejecting H2c. Interdepartmental coordination was also

significantly related to the independence, objectivity and competence of IA and hence H3a – H3c were

supported. As for this research's outcome variable, the results indicate a significant relationship

between IA effectiveness (independence, objectivity and competence) and IA quality and hence all

three hypotheses (H4a – H4c) were supported.

5. DISCUSSION OF FINDINGS

The study highlighted the key drivers that were associated with IA effectiveness. With the

exception of management support, studied in various audit-related contexts, the study also highlighted

other drivers (i.e. support and acceptance from auditees and interdepartmental coordination) which

have been scarcely explored thus far.

The study found a positive relationship between management support and IA effectiveness (H1a,

H1b and H1c), which is consistent with past studies (i.e., Cohen & Sayag, 2010; Alzeban & Gwilliam,

2014). The findings also echo the view of Yismaw and Mihret (2007) that the absence of management

support undesirably affects IA effectiveness and performance as it hampers the audit process due to the

lack of commitment and priority by the top management. However, Christopher, Sarens and Leung

(2009) warn that independence and objectivity can be threatened when the management is strongly

involved in developing the IA plan and suggested that the CAE and the IA committee should monitor

the impact of top management inputs so as to ensure that it does not affect the independence and

objectivity of IA. Top management support and commitment set essential precedents for all constituent

members of a company to take the audit process seriously to ensure that the audit process is carried out

independently and critically. Apart from ensuring that the audit team receives adequate resources to

carry out IA, management support also means that all the auditors are continuously trained and

developed so they will have the required competencies to undertake the audit process (Cohen &Sayang,

2010), the lack of which has been proven to negatively affect internal auditing (Ahmed et al., 2009).

The study also found that gaining the support and acceptance of auditees was a vital determinant

to ensure that the audit process can be carried out independently and objectively, which has also been

substantiated by Chaiwong’s (2012) and Yismaw & Mihret’s (2007) findings. This will ensure that the

auditors have full access to all events, records and documented evidence necessary for effective audits

(Yismaw and Mihret, 2007). On the other hand, the support and acceptance of auditees were not

associated with the competence of internal auditors. The research posits that the support and acceptance

of auditees may not significantly affect the development of the professional and technical skills of the

auditors. However, it could be argued that some positive learning opportunities do exist where the

development of soft skills is a concern.

The results also implied that interdepartmental coordination, especially between internal auditors

and other departments, had a positive influence on IA effectiveness, namely on independence,

objectivity, and competence, which is aligned with Chaiwong’s (2012) findings. Such

interdepartmental relationships will ensure greater coordination, cooperation and most importantly,

communication, which are all critical for the smooth running of the internal control assessment exercise.

What is more, the ISPPIA standard also emphasizes the need to form a professional working

association between the audit teams and other parties, which helps the internal auditors to achieve IA

goals and provide effective audit outputs. The findings are also consistent with Hunziker's (2017)

studies, which found that inter-departmental coordination between internal auditors and other

departments led to improved IA efficiency.

The last three hypotheses (H4a-H4c) predicting a positive relationship between IA effectiveness

(independence, objectivity and competence) and IA quality were also supported. The findings give

clear evidence that independently, objectively and competently carried out IA leads to IA quality,

ultimately ensuring that the IA objectives are met and that the IA work was carried out efficiently for

improved compliance and continuous improvement (Cohen & Sayag, 2010). This research confirms

that competent auditors are able to deliver quality audits, which is consistent with the findings of Fadzil

et al. (2005), Alzeban and Gwilliam (2014) and Hunziker (2015) that the improved competencies of

auditors coupled with experience (Nudiono & Gamayuni, 2018) can lead to quality audit work.The

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

findings are also aligned with the code of ethics of IA, emphasising the need for competence, whereas

ISPPIA standards clearly state that independence, objectivity and competency are crucial factors that

have a strong bearing on quality audit work (IIA, 2016).The IA activity should be independent,

objective, and its services should strive to add value and improve an organization’s operations on

course towards accomplishing its objectives.

6. CONCLUSIONS AND IMPLICATIONS

In a nutshell, this research has provided empirical evidence on the factors (i.e. management

support, interdepartmental coordination and support and acceptance of auditees) that were positively

related to independence, objectivity and competence, the three building blocks of IA effectiveness. This

paper has empirically demostrated the organizational dynamics (antecedents) that can influence IA

effectiveness, which subsequently affects IA quality. The research novelty is evident in the two factors

that have been least explored: interdepartmental coordination and the support and acceptance of

auditees, which positively predicted IA effectiveness. Conversely, the findings also revealed that the

independence, objectivity and competence of IA were able to predict IA quality, thereby confirming the

link between IA effectiveness and IA quality. Therefore, the research concludes that management

support, interdepartmental coordination, and the support and acceptance of auditees are important

determinants of IA effectiveness, which in turn positively influences IA quality.

6.1 Theoretical Implications

In terms of theoretical implications, this research contributes to the growing body of IA literature

by highlighting the important drivers and outcomes associated with IA effectiveness. The research

added to the corporate governance discourse and addressed the vital research gap highlighted by Lenz

& Hahn (2015) from a developing country perspective, where such research has been lacking (Alzeban

& Gwilliams, 2014). The findings also uncovered that inter-departmental coordination could affect IA

effectiveness, which is a fundamental contribution, as the relationship of internal auditors, auditees and

interdepartmental collaboration is a new field of research under-examined in the context of IA thus far

(Lenz and Hahn, 2015). In contrast Chaiwong (2012), who found that the support and acceptance of

auditees can influence the competency of auditors, this research found that the competency of auditors

was not contingent on the support and acceptance of auditees, which from a pragmatic perspective

should be within the ambit of management support.

This research contributed to the agency theory by highlighting the crucial factors (management

support, support and acceptance of auditees and interdepartmental coordination) that are associated

with the independence, objectivity and competence of IA. Close attention to these factors will ensure

that the internal auditing exercise will lead to quality audit outcomes, rendering its full value in the best

interest of the principals of the company. The boards' (principals’) persistent insistence that the

managers (agents) adhere to corporate governance principles and commit to internal control initiatives

will lead to organizations that are accountable and capable of fulfilling stakeholder requirements. Since

the agency theory suggests that the board of directors has an important monitoring function to perform

internal control initiatives (Elamer et al. 2018), boards could rightfully use IA to aid in overseeing and

monitoring the activities and operations of the organization. With such monitoring and control systems,

organizations will attract more shareholders and debt shareholders, who would have better confidence

knowing that their interest will be protected (AlHares, 2019).

The study also adds to the institutional theory by highlighting the factors associated with the

effectiveness of IA and its effects on quality audit outcomes. Since IA auditors’ competency is

positively associated with quality audit outcomes, the continued commitment by organizations towards

training and developing their internal auditors would raise the standards and professionalism of internal

auditors, thereby contributing towards improvement in internal control practices in organizations,

exemplifying normative isomorphism. Conversely, the IIA could also rise to the occasion and act as a

catalyst for change in promoting best practice and encouraging organizations to put proper structures

and systems in place that leads to a culture of governance and internal controls, apart from coercive

regulatory forces, i.e. Securities Commission of Malaysia, Audit Oversight Board and Companies

Commission of Malaysia. The IIA could forge collaborative and consultative relationships with

organizations, training providers and institutions to create awareness about the nature and potential

benefits of IA.

6.2 Managerial Implications

Managerial implications can also be derived from this research as the paper explored the factors

that can influence the independence, objectivity and competence of the IA team, which in turn affects

IA quality, complementing organizational efforts to achieve their goals whilst fulfilling compliance

Int. Journal of Business Science and Applied Management / Business-and-Management.org

requirements. Hence, the IA team's principles of independence, objectivity, and professional

competency (as emphasised in the ISPPIA standards of IIA) should not be taken lightly by

organizations. These are the prerequisites of effective IA that have been shown to influence quality IA

outcomes. The outcomes of the quality audit should translate into quality recommendations, thus

improving and further strengthening the processes of corporate governance in organizations as

specified in the ISPPIA standard ‘2110 – Governance’ which includes: i) promoting good business

ethics and values within the organization, ii) improving management processes, performance, controls

and accountability, iii) overseeing and communicating risk and control information to appropriate areas

of the organization and iv) coordination of activities and the communication of information between

the board, internal and external auditors as well as other assurance providers and the management (IIA,

2016). To enhance the quality of audit reports, the board of directors, managers and regulators should

continuously ensure that the principles of independence, objectivity and competence are being upheld.

A commitment to internal control practices (i.e. internal audit) would certainly help organizations to

evaluate the extent to which organizations are able to fulfil their obligations and in the process are able

to avoid being subjected to any possible sanction (Porter, 2009).

As for MNC’s that are listed in the Malaysian Stock Exchange Board (MSEB), as well as MNC’s

that are publicly trading in their parent country, the Malaysian Code of Corporate Governance (MCCG)

introduced in 2000 (Securities Commission Malaysia, 2020) and the OECD principles of corporate

governance (OECD, 2019) can be referred to as a useful tool and guideline to foster the internalization

of corporate governance culture. The MCCG was developed based on globally accepted principles and

corporate governance practices that go above and beyond the minimum statutes, regulations, and legal

enforcement. Although the principles and best practices put forth by MCCG relating to internal control

may not be as rigorous as Sarbanes-Oxley, organizations should not downplay the importance of the

task and resources required to assess internal control fully. Corporations can also refer to other sources

such as the Committee of Sponsoring Organizations of The Treadway Commission’s (COSO) ‘Internal

Control-Integrated Framework’ for a more comprehensive understanding of internal control and its

relevant practices. This is known to be a reliable basis for external audit attestation of management’s

control assessment (KPMG, 2004).

This research provides insights to the boards of directors and management of MNCs and the IA

Department Manager or the Chief Audit Executive (CAE) on efforts that can be taken to improve IA

effectiveness and IA quality. The IA Manager, IA team and the management should take appropriate

initiatives to entrench the main factors that have been found to be associated with IA effectiveness in

this research, namely management support, the support and acceptance of auditees and

interdepartmental collaborations between the IA team and other departments. By putting these

considerations into action, organizations will ensure that the audit process is carried out independently

and objectively whilst ensuring that the IA department is staffed with highly qualified employees who

are consistently trained and developed to conduct IA effectively. Management’s commitment and

support are essential as the lack of this may send the wrong signal to the auditees and affect auditee

attitudes and the level of support accorded in meeting their departments' audit objectives, thereby

compromising IA effectiveness and quality audit outcomes. Since the nature, objectives and risks of

organizations' businesses vary, the IA manager / CAE can develop an internal audit charter, as

advocated by the IIA, describing the purpose, authority and responsibility for internal auditing, which

is then presented to the board for approval via the audit committee. The charter is a blueprint or a

policy document that specifies independence, objectivity, access, reporting, planning, quality

improvement, and approvals (IIA, 2019). This information may also be useful to external stakeholders

when evaluating the IA function as part of an organization’s overall governance process.

7. LIMITATIONS AND FUTURE RESEARCH

Like any other research studies, this paper also presents some limitations which open up future

research avenues. The study only selected 12 MNC’s operating within the FIZ of Penang, Malaysia,

which may not represent MNC’s operating in Malaysia, although the study provides substantial

evidence about the drivers and outcomes associated with IA effectiveness. The sample size of 102

respondents was also small owing to the low number of auditors, averaging between 5 in smaller

companies to 12 auditors in bigger MNCs; hence, the findings should be treated with caution. Future

researchers could consider targeting a larger sample size with more companies involved. Future studies

could also be conducted in Malaysian public listed corporations subjected to audit requirements by

regulatory bodies to validate further factors associated with IA effectiveness, with a specific emphasis

on interdepartmental collaborations and the support of auditees, two factors which are still under-

examined. The present model could also be extended in different organizations and country settings for

further validation. As IA involves various stages and phases, it opens up possible research avenues to

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

investigate the factors associated with the effective execution of each stage of the IA for greater clarity

on what it would take to ensure that the IA exercise renders the desired value to organizations.

Further research could also be conducted on the specific contents and potential use and benefits of

IA reports. Research on how IA reports can enhance governance transparency among internal and

external stakeholders is lacking in the ASEAN context. On a different note, researchers could also

consider studying the factors that are associated with the effective implementation of internal control

systems and internal audits in non-governmental organizations (NGO), which often depend on public

funds and donations from individuals and corporations to further their cause, as audit-related research

within NGO settings is so far lacking.

REFERENCES

Abbasi, G. A., Jagaveeran, M., Goh, Y. N., & Tariq, B. (2021). The impact of type of content use on

smartphone addiction and academic performance: Physical activity as moderator. Technology in

Society, 64, 101521.

Abbott, L. J., Daugherty, B., Parker, S. and Peters, G.F. (2016). "Internal Audit Quality and Financial

Reporting Quality: The Joint Importance of Independence and Competence”, Journal of

Accounting Research, Vol. 54 No. 1, pp. 3-40.

Adams, M.B. (1994),"Agency Theory and the Internal Audit", Managerial Auditing Journal, Vol. 9,

No. 8, pp. 8 – 12.

ACFE (2018),Report To The Nations: 2018 Global Study on Occupational Fraud and Abuse. Available

at: https://www.acfe.com/report-to-the-nations/2018/ (accessed 28 July 2019).

Ahmad N., Othman, R., and Jusoff, K., (2009), “The effectiveness of Internal Audit in Malaysian

Public Sector”, Journal of Modern Accounting and Auditing, Vol. 5 No. 9, pp. 53 – 62.

AlHares, A. (2019), “Corporate governance and the cost of capital in OECD countries”, International

Journal of Ethics and Systems, Vol. 35 No. 4, pp. 665-690.

Albrecht, W.S., Howe, K.R., Schueler, D.R. and Stocks, K.D. (1988), Evaluating the Effectiveness of

Internal Audit Departments, The Institute of Internal Auditors Research Foundation, Altamonte

Springs, FL.

Alqudah, H.M., Amran, N.A. and Hassan, H. (2019), "Factors affecting the internal auditors’

effectiveness in the Jordanian public sector: The moderating effect of task complexity", EuroMed

Journal of Business, Vol. 14 No. 3, pp. 251-273.

Al Matarneh, G. F. (2011), “Factors determining the internal audit quality in banks: Empirical

Evidence from Jordan”, International Research Journal of Finance and Economics, Vol. 73, pp.

99-108.

Ali, A.M., Gloeck, J.D., Ali, A., Ahmi, A. &Sahdan., M.H. (2007), “Internal audit in the state and local

governments of Malaysia”, Southern African Journal of Accountability and Auditing, Vol. 7, pp.

32-41.

Al-Twaijry, A.A.M., Brierley, J.A. and Gwilliam, D.R. (2003), “The development of internal audit in

Saudi Arabia: an institutional theory perspective”, Critical Perspectives on Accounting, Vol. 14

No. 5, pp. 507-531.

Alzeban, A. and D. Gwilliam (2014), "Factors affecting the internal audit effectiveness: A survey of the

Saudi public sector", Journal of International Accounting, Auditing and Taxation, Vol. 23 No. 2,

pp. 74-86.

Anderson, U. (2003), Chapter 4 Assurance and Consulting Services, The Institute of Internal Auditors

Research Foundation, Altamonte Springs, FL.

Alzeban, A., &Sawan, N. (2013), “The role of internal audit function in the public sector context in

Saudi Arabia”, African Journal of Business Management, Vol. 7 No. 6, pp. 443-454.

Arena, M. and Azzone, G. (2009), “Identifying organizational drivers of internal audit effectiveness”,

International Journal of Auditing, Vol. 13 No. 1, pp. 43-60.

Badara, S., and Saidin, Z., (2013), “Impact of Effective Internal Control System on the Internal Audit

Effectiveness at Local Government Level”, Journal of Social and Development Sciences, Vol. 4

No. 1, pp. 16-23.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Basel. (2012). “Basel Committee on Banking Supervision, The internal audit function in banks, Bank

of International Settlements”, available at: http://www.bis.org/publ/bcbs223.pdf (accessed 13 July

2019).

Beckmerhagen, I., Berg, H., Karapetrovic, S. and Willborn, W. (2004), “On the effectiveness of quality

management system audits”, The TQM Magazine, Vol. 16 No. 1, pp. 14-25.

Bota-Avram, C., and Palfi, C. (2009), “Measuring and Assessment of Internal Audit‟s Effectiveness”,

Annals of Faculty Economy, Vol. 3 No. 1, pp.784-790.

Bryer, R. (2006), "Accounting and control of the labour process", Critical Perspectives on Accounting,

Vol. 17 No. 5, pp. 551-598.

Butcher, K., et al. (2013), "Perceptions of audit service quality and auditor retention", International

Journal of Auditing, Vol. 17 No.1, pp. 54-74.

Chaiwong, D. (2012), "Factors Affecting Efficiency in Internal Auditing Performance AndOperational

Outcome Of The Large Thai Listed Companies”, International Journal of Arts & Sciences, Vol. 5

No. 1, pp. 311

Chaveerug, A., (2011), “The role of accounting information system knowledge on audit effectiveness

of CPAS in Thailand”, International Journal of Business Strategy, Vol 11, pp. 78-89.

Christopher, J., Sarens, G. and Leung, P. (2009),"A critical analysis of the independence of the internal

audit function: evidence from Australia", Accounting, Auditing & Accountability Journal, Vol. 22

No. 2, pp. 200 – 220

Cohen, A. and Sayag, G. (2010), “The effectiveness of internal auditing: an empirical examination of

its determinants in Israeli organizations”, Australian Accounting Review, Vol. 20 No. 3, pp. 296-

307.

Daniels, B. W. and Q. Booker (2011), "The effects of audit firm rotation on perceived auditor

Independence and audit quality", Research in Accounting Regulation, Vol. 23 No.1, pp. 78-82.

Dellai, H. and Omri, M.A.B. (2016), “Factors Affecting the Internal Audit Effectiveness in Tunisian

Organizations”, Research Journal of Finance and Accounting, Vol. 7 No.16, pp. 208 – 221.

DiMaggio, P.J. and Powell, W.W. (1983), “The iron cage revisited: institutional isomorphism and

collective rationality in organizational fields”, American Sociological Review, Vol. 48 No. 2, pp.

147-60.

Dittenhofer, M., (2001), “Internal Auditing Effectiveness: An Expansion of Present Methods”,

Managerial Auditing Journal, Vol. 16, pp. 443–50.

Dominic, S.B.S. and Nonno, M. (2011), “The internal audit function: Perceptions of internal audit roles,

effectiveness and evaluation”, Managerial Auditing Journal, Vol. 26 No. 7, pp. 605-622.

Elamer, A., AlHares, A., Ntim, C.G. and Benyazid, I. (2018), “The corporate governance-risk taking

nexus: Evidence from Insurance companies”, International Journal of Ethics and Systems, Vol.

34No. 4, pp. 493-509

Emmanuel, O. E., Ajanya, M.A., and Audu, F. (2013), “An Assessment Of Internal Control Audit On

The Efficiency Of Public Sector in Kogi State Nigeria”, Mediterranean Journal of Social Sciences,

Vol. 4 N0. 11, pp. 717-726

Eisenhardt, K. M. (1989), “Agency theory: An assessment and review”, Academy of Management

Review, Vol. 14, pp. 57–74.

Erasmus, L.J. and Coetzee, P. (2018), “Drivers of stakeholders’ view of internal audit effectiveness:

management versus audit committee”, Managerial Auditing Journal, Vol. 33 No. 1, pp. 90 – 114.

Eulerich, M, Velte, P. &Theis, J. (2015), “Internal Auditors’ Contribution to Good Corporate

Governance. An Empirical Analysis for the One-Tier Governance System with a Focus on the

Relationship between Internal Audit Function and Audit Committee”,Corporate ownership and

Control, Vol. 13, No. 1, pp. 142 – 151.

Fadzil, F., Haron, H., & Jantan, M. (2005), “Internal auditing practices and internal control system”,

Managerial Auditing Journal, Vol. 20, No. 8, pp. 844-866.

Feizizadeh.A., (2012), “Strengthening Internal Audit Effectiveness”, Indian Journal of Science and

Technology, Vol. 5 No. 5, pp. 2777 – 2778.

Gold, A. H., Malhotra, A., &Segars, A. H. (2001), “Knowledge management: An organizational

capabilities perspective”, Journal of Management Information Systems, Vol. 18 No.1, pp. 185-214

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

Hair J. F., Ringle, C. M., &Sarstedt, M. (2011), “PLS-SEM: Indeed a silver bullet”, Journal of

Marketing theory and Practice, Vol. 19 No. 2, pp. 139-152.

Hair, Jr. J. F., Hult, G. T. M., Ringle, C., &Sarstedt, M. (2016), A Primer on Partial Least Squares

Structural Equation Modeling (PLS-SEM), Second Edition, Thousand Oaks: Sage.

Hayes, R., Dassen, R., Schilder, A., and Wallage, P. (2015). Principles Of Auditing: An Introduction

To International Standards On Auditing. Second Edition. Prentice Hall, Financial Times.

Henseler, J., Ringle, C. M., &Sarstedt, M. (2015). A new criterion for assessing discriminant validity in

variance-based structural equation modeling. Journal of the academy of marketing science, 43(1),

115-135.

Hair, J. F., Risher, J. J., Sarstedt, M., &Ringle, C. M. (2019). When to use and how to report the results

of PLS-SEM. European Business Review.

Holt, T.P. and DeZoort, T. (2009), “The Effects of Internal Audit Report Disclosure on Investor

Confidence and Investment Decisions”, International Journal of Auditing, Vol. 13, pp. 61-77.

Hunziker, S. (2017), "Efficiency of internal control: evidence from Swiss non-financial companies”,

Journal of Management & Governance, Vol. 21 No. 2, pp. 399-433.

Institute of Internal Auditors (2020), “Definition of internal auditing”, Available at The Institute of

Internal Auditors Homepage: https://na.theiia.org/standards-guidance/mandatory-

guidance/Pages/Definition-of-Internal-Auditing.aspx (Accessed 7 April 2020).

Institute of Internal Auditors (2019) “The Internal Audit Charter: A blueprint to assurance success. IIA

Position Paper. Available at: https://na.theiia.org/about-ia/PublicDocuments/PP-The-Internal-

Audit-Charter.pdf (Accessed on 30 April, 2020).

Institute of Internal Auditors (2016), “International standards for the professional practice of internal

auditing”, The Institute of Internal Auditors Homepage, available at:

https://na.theiia.org/standards-guidance/Public%20Documents/IPPF-Standards-2017.pdf

(Accessed 14 July 2019).

Institute of Internal Auditors (2010), “The IIA’s Global Internal Audit Survey: Core Competencies for

Today’s Internal Auditor”, The Institute of Internal Auditors Research Foundation. Available at:

https://na.theiia.org/iiarf/Public%20Documents/Core-Competencies-for-Todays-Internal-

Auditor.pdf (Accessed 2 August, 2019).

Jensen, M.C. and Meckling, W.H. (1976), “Theory of the Firm: Management Behaviour, Agency Costs

and Ownership Structure”, Journal of Financial Economics, Vol. 3 No. 3,pp. 305-60.

Joksimovic, M. & Ahmed, A. (2017), “The internal audit as function to the corporate governance”,

Economy Review, Vol. 24 No. 2, pp. 109 – 126.

Keong, K. Q. C., Kumar, K. M., & Abbasi, G. A. (2020). An Extended TPB Model to Predicting

Consumer Acceptance Towards Remanufactured Goods: A case for Malaysia. Journal of

Entrepreneurship, Business and Economics, 8(2), 93-119.

Khan, T.M., Nosheen, S. & ul Haq, N. (2020), “Corporate governance mechanism and comparative

analysis of one-tier and two-tier board structures: evidence from ASEAN countries”. International

Journal Disclosure and Governance, Vol. 17, pp. 61–72.

KPMG (2004), “Internal control agenda” Corporate trends: Turning knowledge into value, Issue 1.

KPMG, Malaysia. Available at:

https://assets.kpmg/content/dam/kpmg/pdf/2016/03/corporatetrends-0404.pdf (Accessed 4

March

2020)

Krishnamoorthy, G. (2002), “A multistage approach to external auditor’s evaluation of the internal

audit function”, Auditing: A Journal of Practice and Theory, Vol. 21 No. 1.

Kren, L. and Kerr, J.L. (1993), “The Effect of Behaviour Monitoring and Uncertainty in

the Use of Performance-contingent Compensation”, Accounting and Business Research, Vol. 23, No. 9,

pp. 159-68.

Kock, N. (2015). Common method bias in PLS-SEM: A full collinearity assessment approach.

International Journal of e-Collaboration (ijec), 11(4), 1-10.

Lenz, R and Hahn, U., (2015), "A synthesis of empirical internal audit effectiveness literature pointing

to new research opportunities", Managerial Auditing Journal, Vol. 30 No. 1, pp.5-33. pp. 95-121

Mahzan, N., Zulkifli, N. and Umor, S. (2012), "Role and authority: An empirical study on internal

auditors in Malaysia”, Asian Journal of Business and Accounting, Vol. 5, No. 2, pp. 69 – 98.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Marks, N. (2000), How Much is Enough? TheInternal Auditor, February, pp. 28–34.

Marks, N. (2017), Management’s guide to Sarbanes-Oxley Section 404, 4

Edition, The Internal Audit

Foundation, Institute of Internal Auditors, USA.

Mihret, D.G. and Yismaw, A.W. (2007), “Internal audit effectiveness: an Ethiopian public sector case

study”, Managerial Auditing Journal, Vol. 22 No. 5, pp. 470-484.

Mihret, D.G., James, K. and Mula, J.M. (2010), “Antecedents and organizational performance

implications of internal audit effectiveness”, Pacific Accounting Review, Vol. 22 No. 3, pp. 224-

252.

Miller, L., (1999), The Internal Audit Profession—Redefined, The Internal Auditor, August, p. 11.

Milton Nyaga, K., David, K. and George Kamau, R. (2018), “Influence Of Internal Audit Independence

On Internal Audit Effectiveness In The Kirinyaga County Government, Kenya”, International

Journal of Economics, Commerce and Management, Vol.6 No. 5, pp. 341 – 360.

Morrill, C. and J. Morrill (2003), "Internal auditors and the external audit: a transaction cost

perspective", Managerial Auditing Journal, Vol. 18 No. 6, pp. 490-504.

Mustika A. C. (2015), “Factors Affecting The Internal Audit Effectiveness”, JurnalAkuntansi and

Auditing. Vol. 12 No. 2, pp. 110-122.

Mason, C. H., & Perreault Jr, W. D. (1991). Collinearity, power, and interpretation of multiple

regression analysis. Journal of marketing research, 28(3), 268-280.

G. Shieh, On the misconception of multicollinearity in detection of moderating effects:

Multicollinearityis not always detrimental, Multivariate Behav. Res. 45 (2010) 483–507.

Mutchler, J.F. (2003), Independence and Objectivity: A Framework for Research Opportunities in

Internal Auditing, IIA Research Foundation, Altamonte Springs, FL.

Nurdiono and Gamayuni, R.R. (2018), “The Effect of Internal Auditor Competency on Internal Audit

Quality and Its Implication on the Accountability of Local Government”, European Research

Studies Journal, Vol. 21 No. 4, pp. 426 – 434.

OECD (2019), Corporate Governance Factbook 2019. Available at:

https://www.oecd.org/daf/ca/corporate-governance-factbook.htm (Accessed on 30 April, 2020).

Pickett, K. H. (2001), Internal control: A manager’s journey, New York: Wiley.

Pickett, K.H., and Spencer, H. (2010). The Internal Auditing Handbook, Third Edition, John Wiley &

Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom.

Pilcher, R. Gilchrist, D. & Singh, I. (2011), “The Relationship between Internal and External Audit in

the Public Sector – A Case Study”, Paper submitted to the AFAANZ Conference, July 2011.

Porter, B.A. (2009), “The audit trinity: the key to securing corporate accountability”, Managerial

Auditing Journal, Vol. 24 No. 2, pp. 156-182

Rustam S., Rashid K. and Zaman K. (2013). “The relationship between audit committees,

compensation incentives and corporate audit fees in Pakistan”, Economic Modeling. Vol. 31, pp.

697- 716.

Rudyanto, A. &Siregar, S.V. (2017), “The effect of stakeholder pressure and corporate governance on

sustainable report quality”, International Journal of Ethics andSystems, Vol. 34 No. 2, pp. 233-

249.

Sakour, A., & Laila, N., (2015), “Internal Audit Effectiveness in Libyan Public Enterprises: An

Approach to the Development of a Theoretical Framework”, Global Business and Management

Research: An International Journal, Vol. 7 No. 2, pp. 12-18.

Sarens, G. and Abdolmohammadi, M.J. (2011), “Monitoring Effects of the Internal Audit Function:

Agency Theory versus other Explanatory Variables”. International Journal of Auditing,Vol. 15,

pp. 1-20.

Sawyer, L.B. (1995), “An internal; audit philosophy”, Internal Auditor, August, pp. 46-55.

Scapens, R.W. (1985), Management Accounting: A Review of Recent Developments, Macmillan Press

Ltd, London.

Schneider, A., (2003), “An examination of whether incentive compensation and stock ownership affect

internal auditor objectivity”, Journal of Management Issues, Vol. 15 No.4, pp. 486-497.

Sekaran, U. and Bougie, R. (2013), Research Methods for Business A Skill-Building Approach, 6th

Edition, Wiley, New York

Karpal Singh Dara Singh, Sajitha Ravindran, Yuvaraj Ganesan, Ghazanfar Ali Abbasi and Hasnah

Haron

Securities Commission Malaysia (2020), Malaysian Code on Corporate Governance’, Available at:

https://www.sc.com.my/regulation/corporate-governance (Accessed on the 28th of April, 2020).

Soh, D.S.B. and Martinov-Bennie, N. (2011), “The internal audit function, perceptions of internal audit

roles, effectiveness and evaluation”, Managerial Auditing Journal, Vol. 26 No. 7, pp. 605-622.

Stewart, J., & Subramaniam, N. (2010), “Internal audit independence and objectivity: Emerging

research opportunities”, Managerial Auditing Journal, Vol. 25 No. 4, pp. 328-360.

Turetken, O., Jethefer, S. & Ozkan, B. (2019), "Internal audit effectiveness: operationalization and

influencing factors", Managerial Auditing Journal, Vol. 35 No. 2, pp. 238-271.

Van Peursem, K.A. (2005), “Conversations with internal auditors, the power of ambiguity”,

Managerial Auditing Journal, Vol. 20 No. 5, pp. 489-512.

Yee, C.S., Sujan, A., James, K. and Leung, J.K.-S. (2008), “The perception of the Singaporean internal

audit customers regarding the role and effectiveness of internal audit”, Asian Journal of Business

and Accounting, Vol. 1 No. 2, pp. 147-74.