Coursework: Internal Audit Effectiveness Literature Review Analysis

This report presents a critical review of four journal articles focused on the effectiveness of internal auditing, exploring factors associated with it and perceptions of internal auditors. The review analyzes the research problems, theoretical frameworks, and methodologies employed in each article. Key findings include the importance of complying with internal audit guidelines, the significance of ethical conduct, and the evolution of the internal audit function from compliance to a strategic role. The report highlights the importance of corporate governance, risk management, and the need for clear objectives to enhance internal audit contributions. It also discusses the research methods used, including data collection from various sources and the use of surveys to gather insights from internal auditors across different countries. The report provides recommendations to improve risk management and the overall effectiveness of internal audit functions.

ISSUES OF ACCOUNTING &
FINANCE

Introduction
The contribution of an internal auditor has become more
prominent than before. The role of an internal auditor is not just
nominal in nature. They contribute towards the risk
management through both their assurance as well as
consulting roles. Hence, it becomes extremely important to an
organisation to identify the factors which have an effect on the
Internal Audit’s quality and improve the same.

Importance of Article
 The first article is important because it talks about the importance of complying with
the standards of Internal Audit suggested by the Institute of Internal Auditors (IIA) in
conducting an Internal Audit of an organisation. The results are obtained from 5
countries namely China, Japan, New Zealand, Australia and Taiwan.
 The article by Rahahle is important because it deals with the importance of
complying with the code of Ethics to conduct an effective internal audit.
 The article by Barr-Pulliam, Nkansa and Walker (2017) uses the Institute of Internal
Auditors’ Three Lines of Defence (3LOD) model in actual risk management and
control.
 The fourth article is important because it analyses the extent to which the internal
audit addresses the financial reporting risk and the approach of Internal Auditors
towards completing their job are identified.

What theoretical framework underpins
the research?
 The first article is based on the theory of Corporate Governance. This article states that
Corporate Governance is an important aspect of any business and internal audit is one of the
necessary measures in following its guidelines.
 The second article is mostly based on the principle of the revised 2010 Audit Guidelines
which emphasises the importance of internal audit committee.
 The third article is on the Internal Audit Function (IAF) which is defined as an independent,
impartial, assurance and referring activity which is designed to improve the value and
organisation’s operations.
 The main underlying theory for the fourth article is the theory of Internal Auditing and the roles
and responsibilities of an internal auditor. The role suggested by the IIA of an independent,
objective, assurance and consulting activity is the main theory for this article.

What are the key motivating
literatures on which the study
depends?
 In case of first article, the key motivating literature is the revised internal audit
guidelines of the New South Wales Government which emphasize the importance
of Internal Audit in maintaining an organisation.
 Motivating literature of second article is the Institute of Internal Auditors Principles
of Code of Ethics.
 Motivating literature of third article is that the shift in the focus of researchers from
discovering the practice and relevant challenges of IAF.
 Motivating literature of fourth article is that it emphasise on improving the quality of
financial reporting.

Which research methods have
been chosen?
 In case of the first article, data was collected from the CBOK database developed
in 2006-07 by IIARF. Research teams were engaged from across the world to
develop a more comprehensive database necessary to capture the view of the
current state of Internal Auditing Profession.
 For the second article, both descriptive and analytical methods were used as a
part of conducting the research. Both primary and secondary data has been used
for collecting the information.
 In third article, the researchers are experimental in nature and combined
experiments, qualitative & survey studies for the research.
 In the fourth article, the data required was obtained from an online survey by
Leung et al. (2004). An online survey was conducted across the CAEs in Australia,
as they are responsible for the IAA within their organisations.

How has the sample been
selected?
 For the first article, the sample was selected on the basis of the number of
useful responses which were obtained by the survey. The total number of
usable responses obtained were 582 which is around 5.53% of the
responses received. These were then used in conducting the analysis
related to the study.
 In second article, the researcher adopted the Likert scale of in measuring
the level of approval of the sample on the basis of the degree of approval.
 In the third article, the sampling was done on the basis of the reputation of
the publishers and their relevance to the topic of Internal Audit.
 Of the 397 surveys conducted, the authors found 85 responses to be
usable. These responses were selected as they represented a satisfactory
view of the purpose of CAEs. These responses were then used as a part
of the analysis conducted by the authors.

What are the findings?
 Most of the entities from different countries in the world have been found to have a
reasonably high level of compliance with the internal audit guidelines. However, the
highest number of respondents which comply with the internal audit guidelines across
the five countries is Australia.
 In second article, The auditors were found to be most compliant in the aspect of
competency which was followed by objectivity, confidentiality and integrity in the same
order.
 In third article, it is advised that IAF is an important value-added activity which helps in
improving the control and checking environment of an entity.
 Internal Auditors have also been found to play a key role in IT systems, managing
strategic risks and financial issues. There however needs to be a better explanation of
the roles that the internal auditors play in managing the risks faced by an entity.

Recommendations
 The paper provides an overview of the compliance of the Internal Audit
regulations across the countries along with the reasons for non-compliance. It
also found major similarities between the auditor’s perceptions about the
standards, adequacy of guidance and the reasons for non-compliance. The
main reason for the differences was the presence of established IAAs in some
countries and the lack of it in other countries.
 The second article suggests that the internal auditors should be encouraged
to increase their level of compliance to the code of ethics for the benefit of the
organisation.
 The third article suggests that the role of internal audit has evolved from that
of a compliance oriented one to an important strategic part in the growth of an
organisation.
 The fourth article states that some of the aspects which can be improved to
improve the risk management of the entity is to provide better communication
and access to the internal auditors with the top people at the organisation. In
order to ensure Internal Auditors contribute more proactively, there is a need
to clearly define their objectives and in more detail.

Conclusion
Internal audit is an important aspect of complying with the external
guidelines and in meeting the requirements of accountability and
corporate governance. The organisations should design an internal
control system which meets the external guidelines and also efficiently
identifies the flaws in the financial reporting. This also needs the
support of the internal auditors who need to behave in an ethical
manner and act with the best interests of the organisation in mind.

References
 Barr-Pulliam, D., Nkansa, P., Walker, K., appreciate helpful comments from
Helen, W., Brown-Liburd, A.G. and Stefaniak, C., 2017. From compliance to
strategy: Using the Three Lines of Defense model to evaluate and motivate
internal audit contributions to accounting research. Available at SSRN
2993364.
 Cooper, B.J., Leung, P., Dellaportas, S., Leung, P. and Cooper, B.J., 2009.
Internal audit–an Asia‐Pacific profile and the level of compliance with
Internal Auditing Standards. Managerial Auditing Journal.
 Leung, P., Cooper, B.J. and Perera, L., 2011. Accountability structures and
management relationships of internal audit. Managerial auditing journal.
 Rahahle, M.Y., 2017. Extent of Compliance with Code of Ethics and its
Impact on Internal Audit Effectiveness. International Journal of Academic
Research in Accounting, Finance and Management Sciences, 7(4), pp.40-
61.

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