International Journal of Advanced Engineering, Management and Science (IJAEMS) [Vol-4, Issue-4, Apr- 2018]

https://dx.doi.org/10.22161/ijaems.4.4.1 ISSN: 2454-1311

Factors influencing the effectiveness of internal

audit on organizational performance
Barzan Omar Ali
Ministry of education, Erbil-Kurdistan

Abstract— The purpose of this study is to investigate the protecting organization assets and are relied upon to give a
factors influencing internal auditing and its relationship persistent record of how the assets have been utilized and
with organizational performance. Multiple regressions were empower constant evaluation on whether the criticism
utilized to evaluate the scale of the influence of the four meets open goals and desires and whether these are all
independent variables identified in the conceptual around adjusted to decrease the dangers intrinsic in the
framework on organizational performance. The sample of central operator relationship (Testa, et al., 2018).
this research was taken by random sampling method. The As internal evaluating has developed in significance inside
data were obtained by questionnaire. All variables were the more extensive condition of administration and control,
measured by using 5 point Likert scale. The result showed issues regarding how viably it plays out this part have risen
that the There are a significant relationship between with more noteworthy conspicuousness than previously
competence of Internal Audit department, size of Internal (Sunyoto, et al.,2018). While there have been prominent
Audit department, management support for internal audit situations where internal audit has been seen to have been at
Independence of internal audit and organizational any rate incompletely fruitful – as WorldCom – the current
performance. The limitation of this study is very small worldwide monetary emergency has prompted addressing
number of populations; therefore the findings will be of how effective internal audit is, both in its more
difficult to be generalized to examine factors influencing the customary part of checking consistence with inside control
internal audit effectiveness. Future research should and budgetary fidelity and its later, and to a degree, self-
consider larger number of the population also including announced part as a necessary piece of the hazard
more internal auditing factors to measure the administration culture inside expansive financial elements,
organizational performance. regardless of whether in the private or open area. As
Keywords— Internal audit, organizational performance, contrasted and the consideration coordinated toward outside
effectiveness, Kurdistan. audit, investigations of the viability of internal audit have
been generally very few (Chen, et al., 2017). Along these
I. INTRODUCTION lines, the nearness of inside controls for distinguishing,
Organizations Internal auditors assume the part of adjusting, assessing and controlling the means, from one
undertaking an autonomous examinations and giving perspective, the lawful necessities of the monetary units on
affirmation on different activities of foundations went for the other, which must be additionally appropriately
improving hierarchical execution consistently. This watched, is fundamental. In this way, an internal control
empowers an organization to meet its operational framework must be set up to distinguish and control the
destinations through well thoroughly considered and degree to which such lawful necessities are watched.
devoted ways to deal with assess and enhance how best to Internal evaluating is a free appraisal of the monetary unit
oversee chance, foundation successful controls and improve that is made by its administration to analyze the inside
administration. The wide perspective of internal audit control framework and reports the sufficiency of the
places it all the more midway as a vital component of open internal control framework as far as propriety, financial
consumption administration that likewise incorporates matters, viability and the fundamental effectiveness in
administration controls and data correspondence forms utilizing assets, tests, evaluations, and so forth. Getting
(Li,et al., 2018). Internal evaluators end up key by advising beyond any doubt that the utilization of open assets has
people in general division because of rule operator been spent appropriately and monetarily proficient,
relationship that exists between the official and the general successful, and in light of a legitimate concern for society,
population (Cai & Jun, 2018). Internal auditor help in has a fundamental part. In rundown, internal auditing is

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considered as a vital piece of a compelling administration in trust in money related announcing and corporate
every single financial unit and it is vital as per examining administration.
directions and thinking about the boundless necessities of In the course of recent years, Enterprise Risk Management
responsibility in the utilization of assets, particularly open has turned into a critical approach in dealing with a wide
assets, it isn't conceivable to give reasonable defense to the exhibit of dangers in a coordinated, venture wide design. It
absence of internal auditing, even in little establishments. is realized that the more prominent the degree of ERM
The presence of internal auditing is one of the conditions execution, the more endeavors might be devoted to the IA
for the productive activity of monetary organizations. There (Abdolmohammadi, et al., 2017). All the more as of late,
are numerous chiefs who endeavor to depend on the Laura, Jenny and Nava inspected the connection between
execution of internal auditor to enhance their execution and internal evaluators' inclusion in ERM and the impression of
accomplish authoritative objectives (D'Onza & Sarens, their readiness to answer to the audit board of trustees. Be
2018). Internal open audit has a unique influence in that as it may, the utilization of ERM and its correct part in
guaranteeing the usefulness of the administrative the execution of IA certainly justify more consideration.
responsibility system. With regards to law, the general goal Past research demonstrates that data innovation assumes a
of internal open audit is to upgrade the nature of open critical part in catching and assessing bookkeeping data
substances' administration, through a free evaluation of (Islam, et al., 2017). Since the Enterprise Resource Planning
control forms, chance administration and administration. In framework and examining programming were presented,
this regard, the internal audit should be directed in they have quickly enhanced the nature of bookkeeping and
connection to all exercises inside an open element and there budgetary procedures, changing evaluating techniques, and
is a legitimate necessity that more than ten exercises, areas enhancing coordination productivity and also the mix of
or frameworks, for example, exercises having a budgetary different utilitarian regions.
effect, installments, patrimony administration, bookkeeping
frameworks, administration frameworks and data II. THEORETICAL FRAMEWORK
frameworks and so on be evaluated at any rate once like Internal audit productivity assessment standards it is
clockwork, yet it isn't constrained to that (Lenz, et al.,2017). essential to examine the idea of internal audit (Putri, et al.,
The point of internal examining is to enhance authoritative 2017). Without a doubt, the substantial measure of
productivity and effectiveness through valuable feedback definitions that is given by numerous scientists portrays the
(Wu, et al., 2017). Mihret & Grant, (2017), affirms that the considerable significance of internal auditing. All the more
estimation of internal audit had been influenced by the particularly, the Institute of Internal Auditors, (Tomic¸et al.,
discernment that internal auditing just evaluates 2017), characterized internal auditing as "an autonomous
bookkeeping capacities, is past and present agent opposite examination work, set up inside an organization to analyze
on proactive and in this manner does not bigly affect and assess its exercises as a support of the organization". By
hierarchical execution. Shamki & Alhajri, (2017), estimating and assessing the effectiveness of hierarchical
characterized internal audit viability "as the degree controls, inside examining, itself, turns into a critical
(counting quality) to which built up destinations are administrative control gadget, which is specifically
accomplished". Internal audit viability implies the degree to connected to the authoritative structure and the general
which an internal audit office meets its motivations (Mihret standards of the business (Ferramosca, et al.,2017). In a
and Yismaw, 2007). Internal audit work assumes a critical similar period, the Committee of Sponsoring Organization's
part in the authoritative procedure, and consequently it isn't show created by the American Institute of Certified Public
just required to perform common affirmation exercises, yet Accountants, the American Accounting Organization, the
in addition to fill in as a key accomplice of the organization Financial Executives Institute, the Institute of Internal
and enhance its exercises towards enhancing hierarchical Auditors, and the Institute of Management Accountants has
procedures and guaranteeing their effectiveness and been embraced as the for the most part acknowledged
effectiveness. Organizations with powerful and proficient structure for internal control and is generally perceived as
internal audit work can identify misrepresentation more the complete standard to evaluate the viability of inside
than those that have not such a capacity inside their control framework (Kabuye, et al., 2017). In this specific
organizations (Desmedt, et al., 2017). Viable internal audit situation, the COSO demonstrate characterizes inside
capacity could be a noteworthy resource for enhancing open control as takes after: "Internal control is a procedure,
affected by a substance's top managerial staff,

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administration and other work force intended to give the inside review's part has been transformed from a
sensible confirmation of the accomplishment of destinations policeman' to an expert.
in the accompanying classifications: viability and Inside control is comprehensively ordered projects and
effectiveness of tasks, unwavering quality of budgetary procedures initiated by administration of an organization
announcing and consistence with pertinent laws and which encourages the organization to accomplish its
directions" (Seol, et al.,2017). Likewise, the U.S. objectives and destinations and additionally conforming to
Government Accountability Office noticed that internal laws and directions. This definition is additionally
auditing is "a vital part of an organization's administration elaborated to give full significance to viability, productivity
that gives sensible confirmation that the accompanying and unwavering quality, as takes after: Effectiveness and
targets are being accomplished: effectiveness and proficiency of the tasks of the substance looks to address
proficiency of activities, dependability of money related the based business and corporate goals, accomplishing
detailing, and consistence with appropriate laws and focuses and securing the assets of the element (Badara &
controls" (Lenz & Hahn, 2015). Saidin, 2014). The other class of sensible affirmation that
Internal audit possesses a novel position in the internal internal controls try to give, identifies with dependable
affirmation administrations given by people in general and money related revealing which incorporates united
administrative bodies pushed by the present organizations budgetary explanation. Thirdly internal controls give
outrages and worldwide money related emergency (Alzeban appraisal of consistence laws and directions. The diverse
& Gwilliam, 2014). Issues identified with auditing and part of the above definition bargains distinctive parts of the
monetary prevision and announcing have been unfurled organization (Baharud, et al., 2014). Concluding from the
since budgetary markets emergency. To assess above definition internal control framework can be believed
organizations, administration needs to assess the two to work at various levels of adequacy. The above
representatives' genuineness and work's proficiency. These classifications can be estimated based on how every
obligations have been designated to the built up formal viewpoint has possessed the capacity to accomplish its
internal audit work (George & Konstantinos, 2015). goals of dependable budgetary explanations, consistence
Rapidly, internal audit scope has been reached out to with laws and directions and shielding the assets of the
incorporate a large portion of monetary exchanges' substance.
confirmation, and step by step moved from evaluating for The internal audit work assumes a novel part in the
administration to auditing of administration approach administration procedure; in reality it is a part that is by and
(Abbott, et al.,2016). Internal auditing could help large generally wrangled about. We trust the result of this
organizations in better achieve their targets by getting a verbal confrontation will significantly impact the idea of the
deliberate and restrained way to deal with enhance and internal audit movement in the years to come. We
assess the control, chance administration, and the additionally trust that specialists can add to this level
administration forms effectiveness (Psomas & Antony, headed discussion through an extensive variety of research
2015). The internal auditors must be described with the philosophies. Administration frequently calls upon internal
most noteworthy expert objectivity levels of imparting auditors to assist give them confirmation that (a) dangers
aptitudes including gathering and assessing data identified are viably distinguished and observed, (b) hierarchical
with the analyzed exercises or procedures (D'Onza, et procedures are successfully controlled, and (c) authoritative
al.,2015). While administration's expanded consideration procedures are productive or compelling. In this structure,
regarding internal audit suggestions urged internal the IAF assumes a novel part. The early internal audit
evaluators to give their earnest attempts, the absence of writing, e.g., Sawyer, regularly depicted internal auditors as
administration consideration gives the audit a terrible the "eyes and ears of administration." As we note in
thought in regards to the significance of internal auditing different parts, inside control has gone up against a more
which thusly antagonistically influence the audit extensive significance to incorporate the vital pretended by
attributions (Kafetzopoulos & Gotzamani, 2014). This study top administration in setting the tone at the best (Elbardan
endeavored to clarify the internal auditors' part situation & Ghoneim,2015). In this manner, internal auditors may get
which emerges from the desire that internal examiners themselves clashed in helping administration to survey the
could help the administration and also autonomously assess viability of their administration forms while answering to
it. Numerous respondents allude to that in the current years the audit advisory group on the tone at the best. The internal
audit work has developed in numerous organizations to a

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position where it is regularly called upon to take initiative in have provoked reaction from leaders is very vital in
helping the organization execute, evaluate, or conceptualize accomplishing hierarchical execution (Angiola & Bianchi,
hazard administration and control forms inside an 2015). In this way, internal audit is a component of very
organization. As it were, internal audit has assumed a experienced, proficient and expertized staff; sensible size of
dynamic part in actualizing compelling administration and audit staff; freedom and objectivity in the audit procedure
controls while being solicited to evaluate the effectiveness and capacity to impart audit discoveries and suggestions
from administration's control rehearses (Almajali, et al., through the general and satisfactory announcing design.
2016). What exactly degree would the arrangement of such Various examinations have tried towards the investigations
administrations struggle with the more extensive of internal audit capacities considering the part the
administration part? Audit Committee — Recent enactment capacities are playing in authoritative execution. The need
and stock trade recommendations on better corporate to explore such reaction from both open division
administration have raised the part of the audit advisory organization and would be essential in supporting the
group to a prevalent part in checking and giving an account change in outlook from customary focal point of Internal
of the viability of corporate administration. This has Audit Function to recently characterized internal audit
prompted different proposals that the internal audit work work. To successfully center on internal audit work, factors
report straightforwardly to the audit council, not to senior such internal audit fitness, freedom, size, opportuneness and
administration. The suggestion may make strain with the detailing line in internal audits are of key significance
more customary part of internal audit going about as the (Alzeban & Sawan, 2015).
"eyes and ears" of administration. We trust the idea of that The administration of an organization assumes a basic part
pressure and the effect of such strain on both the idea of the in improving the effectiveness of the internal audit work.
internal audit action and its commitment to the organization The initiative of the organization impacts the effectiveness
ought to be inspected (Abuazza, et al., 2015). of the internal audit through affecting on its freedom. The
Internal audit quality is described by competency and autonomy of the internal examiner is inspected inside the
freedom. The capacity to impart audit reports and different setting of opportunity from conditions that undermine
discoveries and proposals in time and in the meantime to objectivity and appearance of objectivity (Ege,2014).

Conceptual framework
Internal Audit effectiveness

Fig.1: Conceptual framework

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Hypotheses: a = Constant
Hypothesis -1- There is a significant relationship between b1, b2, b3, b4, b5 = Coefficient regression
competence of Internal Audit department and organizational e = Error
performance.
Hypothesis -2- There is a significant relationship between IV. ANALYSIS AND FINDINGS
size of Internal Audit department and organizational Reliability analysis
performance. Table (1) demonstrates the reliability analysis applied to
Hypothesis -3- There is a significant relationship between survey the reliability of items employed to measure the
management support for internal audit and organizational organizational performance. According to the research
performance. model, the researcher developed four research hypotheses
Hypothesis -4- There is a significant relationship between through using Competence of Internal Audit department,
Independence of internal audit and organizational Size of Internal Audit department, Management support for
performance. internal audit, and Independence of internal audit as
independent variables to measure organizational
performance as dependent variable. Moreover, the findings
III. RESEARCH METHOD of the reliability analysis were as follow: First result
Multiple regressions were utilized to evaluate the scale of indicated that the items used to measure (competence of
the influence of the four independent variables identified in Internal Audit department) was found to be reliable since
the conceptual framework on organizational performance. the value of alpha was .712, moreover the second result
The sample of this research was taken by random sampling indicated that the items used to measure (size of Internal
method. The data were obtained by questionnaire. All Audit department) was found to be reliable since the value
variables were measured by using 5 point Likert scale. The of alpha was .736, as for the third result indicated that the
researcher was able to obtain 139 filled questionnaires. questions used to measure (management support for internal
The basic model of multiple regressions is: audit) was found to be reliable since the value of alpha was
Y’ = a + b1X1 + b2X2 + b3X3 + b4X4 + e .714, as for the fourth result indicated that the items used to
Y’ = Organizational Performance measure (independence of internal audit) was found to be
X1 = Competence of Internal Audit department reliable since the value of alpha was .784, and finally the
X2 = Size of Internal Audit department result for dependent variable indicated that the item used to
X3 = Management support for internal audit measure organizational performance as dependent factor
X4 = Independence of internal audit found to be reliable since the value of alpha was .781.

Table.1: Reliability analysis

Variables Cronbach's Alpha Items
Competence of Internal Audit department .712 9

Size of Internal Audit department .736 8

Management support for internal audit .714 7
Independence of internal audit .784 9
Organizational performance .781 9
Total .745 42

Correlation Analysis The findings of correlation analysis revealed that the value
Table (2) demonstrates the correlation analysis of correlation between (Competence of Internal Audit
implemented to measure the relationship between four department) as independent factor with organizational
independent factors (Competence of Internal Audit performance = .714**, as it is clear that (**) correlation is
department, Size of Internal Audit department, Management significant at the 0.01 level (2-tailed), accordingly it was
support for internal audit, and Independence of internal found that there is a positive and significant correlation
audit), with organizational performance as dependent between (Competence of Internal Audit department) as
variable. independent factor with organizational performance, the

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International Journal of Advanced Engineering, Management and Science (IJAEMS) [Vol-4, Issue-4, Apr- 2018]
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value of correlation between (Size of Internal Audit found that there is a positive and significant correlation
department) as independent factor with organizational between (Management support for internal audit) as
performance = .701**, as it is clear that (**) correlation is independent factor with organizational performance, and the
significant at the 0.01 level (2-tailed), accordingly it was value of correlation between (Independence of internal
found that there is a positive and significant correlation audit) as independent factor with organizational
between (Size of Internal Audit department) as independent performance = .698**, as it is clear that (**) correlation is
factor with organizational performance, the value of significant at the 0.01 level (2-tailed), accordingly it was
correlation between (Management support for internal found that there is a positive and significant correlation
audit) as independent factor with organizational between (Independence of internal audit) as independent
performance = .618**, as it is clear that (**) correlation is factor with organizational performance.
significant at the 0.01 level (2-tailed), accordingly it was

Table.2: Correlations Analysis

Factors Correlation Organizational performance
Correlation .714**
Competence of Internal Audit department Sig. (2-tailed) .000
N 139
Size of Internal Audit department Correlation .701**
Sig. (2-tailed) .000
N 139
Management support for internal audit Correlation .618**
Sig. (2-tailed) .000
N 139
Independence of internal audit Correlation .698**
Sig. (2-tailed) .000
N 139
**. Correlation is significant at the 0.01 level (2-tailed).

Regression Analysis is a significant relationship between size of Internal Audit

Table (3) demonstrates the findings of multiple regression department and organizational performance’’, the P-value
analysis which employed to examine the four research between size of management support for internal audit and
hypotheses, the results revealed the followings: the P-value organizational performance = .000, therefore, the second
between Internal Audit department and organizational research hypothesis is supported which stated that ‘’ There
performance = .000, therefore, the first research hypothesis is a significant relationship between management support
is supported which stated that ‘’ There is a significant for internal audit and organizational performance’’, and the
relationship between competence of Internal Audit P-value between Independence of internal audit and
department and organizational performance’’, the P-value organizational performance = .000, therefore, the second
between size of Internal Audit department and research hypothesis is supported which stated that ‘’ There
organizational performance = .000, therefore, the second is a significant relationship between Independence of
research hypothesis is supported which stated that ‘’ There internal audit and organizational performance’’

Table.3: Regression Analysis

Model Unstandardized Standardized T Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) 1.041 .058 16.041 .000
Competence of Internal Audit department .614 .021 .621 1.894 .000
Size of Internal Audit department .623 .018 .631 1.974 .000

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Management support for internal audit .708 .008 .717 1.6984 .000
Independence of internal audit .619 .016 .624 2.451 .000
Dependent Variable: Organizational Performance

V. CONCLUSION [3] Abuazza, W. O., Mihret, D. G., James, K., & Best, P.
The purpose of this study is to investigate the factors (2015). The perceived scope of internal audit function
influencing internal auditing and its relationship with in Libyan public enterprises. Managerial Auditing
organizational performance. The result showed that the P- Journal, 30(6/7), 560-581.
value between Internal Audit department and organizational [4] Almajali, D. A., Masa'deh, R. E., & Tarhini, A.
performance = .000, therefore, the first research hypothesis (2016). Antecedents of ERP systems implementation
is supported which stated that ‘’ There is a significant success: a study on Jordanian healthcare
relationship between competence of Internal Audit sector. Journal of Enterprise Information
department and organizational performance’’, the P-value Management, 29(4), 549-565.
between size of Internal Audit department and [5] Alzeban, A., & Gwilliam, D. (2014). Factors affecting
organizational performance = .000, therefore, the second the internal audit effectiveness: A survey of the Saudi
research hypothesis is supported which stated that ‘’ There public sector. Journal of International Accounting,
is a significant relationship between size of Internal Audit Auditing and Taxation, 23(2), 74-86.
department and organizational performance’’, the P-value [6] Alzeban, A., & Sawan, N. (2015).The impact of audit
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P-value between Independence of internal audit and skills development for effective performance
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research hypothesis is supported which stated that ‘’ There governments. Public Management Review, 17(4), 517-
is a significant relationship between Independence of 542.
internal audit and organizational performance’’ The [8] Badara, M. A. S., &Saidin, S. Z. (2014).Empirical
limitation of this study is very small number of populations; evidence of antecedents of internal audit effectiveness
therefore the findings will be difficult to be generalized to from Nigerian perspective. Middle-East Journal of
examine factors influencing the internal audit effectiveness. Scientific Research, 19(4), 460-469.
Future research should consider larger number of the [9] Baharud-din, Z., Shokiyah, A., & Ibrahim, M. S.
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measure the organizational performance. internal audit in public sector. International
Proceedings of Economics Development and
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