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Abstract importance of internal audit within the




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In the
recent years, the importance of internal audit within the organizations is
increasing as well as the role of
auditing technology in increasing the value of an organization. Internal audits
provide services to company management in number of ways. It may include
detection and prevention fraud, analyzing internal control, and checking
compliance with company policies and government regulation. Companies on
smaller scale may need these functions even more than companies on larger
scale. A small business simply cannot afford employee fraud, waste, or a
government fine. Launching an internal audit function helps in the growth of a
small business.

The Institute of Internal Auditors (IIA, 1999a) de?ned
internal auditing as:

“an independent, objective assurance and consulting activity
designed to add value and improve an organization’s operations. It helps an
organization accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control,
and governance processes.”

Internal auditing is
becoming a very important function in business today. The role of the internal
auditor in the businesses is often ignored. As a result big losses at major
companies, much attention has recently been given to internal auditing.
Sarbanes-Oxley act is also making the organizations to implement internal audit

Some specific benefits that an Internal Audit function


Improve the “control environment” of the

organization becomes process-dependent
instead of person-dependent

works as an Early Warning System, helps to
identify deficiencies  and remediated on
a timely basis

Ultimately increase accountability within the

With an internal audit function, management
would have an advocate, a risk manager, a controls expert, an efficiency
specialist, a problem-solving partner


Taking in view that internal audit function has a
significant importance within an organization whether it is small or large,
there are some issues which are becoming constraints for internal audit

Those may include management interventions, increased
responsibilities of internal auditor other than his auditing responsibilities,
lack of competence and no adequate use of information technology in the process
of auditing.

The problem arise when the
management unable to find desired results of auditing even when they are
implementing the internal audit function. This is because their internal audit
quality is not up to the mark. Those firms should get to know how to improve
the quality of internal audit, or in other words, that organization should know
all those factors which determine the quality of internal audit function.

Providing assurance regarding controls and Monitoring of
risks are the two significant functions or an effective internal audit
function. Also, internal audit function shows a key role in obedience work and
may also apply significant time on checking or operational-oriented work, with
the objective of improving the organizations effectiveness and efficiency; and
all these elements map directly in to organizational governance (Hermanson and
Rittenberg, 2003). The existence of well-broadcast articles on corporate
failure around the world proposes fragile corporate governance as being a major
cause of the failures. This recommends that auditors both internal and
external, audit committee and board of directors may not properly discharge
their professional and legal tasks.

Management of the organization is responsible for forming and
keeping effective internal control systems, such as structures, activities,
processes, and systems which assistance the management of the institute that
effectively diminish the risks to 
achievement of objectives of the organization. Management is charged
with this duty on behalf of the organization’s stakeholders and is held
responsible for this obligation by an oversight body (e.g. board of directors,
audit committee, elected representatives.

The internal audit department is very vital inside an organization
that the internal audit is considered as the key component in the application
of accounting systems which in shot, helps in appraising the work of the
department. The internal audit is reflected as the strength of the business
accounting as it is the section that records all businesses related to the
sector. The efficacy of internal audit aids to develop the work of the company
because the financial reports mirror the internal audit department’s quality.

For the first time that by electronic means processing of
data came into reality, auditors concerned about the basic variations that
would be made in relation to the new technology in the nature of auditing. But
currently, it is clear that such things do not occur. By applying a set of principles,
auditors continue their technical and independent assessment of financial
activities. In order to reduce the possible damages resulting from integral
risks, more stress is put on internal control. It seems that by appearance of
IT systems, administrative techniques of control have mainly changed and it has
a great effect on the nature of auditing practices.

There are numerous reasons why internal audit efficiency
remains a constantly relevant issue. First, the role of internal audit of a
corporation is considered vital in the corporate governance field (Bostan and
Grosu, 2010). Second, the effectiveness of internal audit is a new research
area in internal auditing (Sarens, 2009), so only few studies have considered
it worldwide, and several researchers have recommended the requirement for more
research especially in developing countries. Third, until today, there is no
agreement among researchers either about the factors influencing, or the best
framework for the effectiveness of internal auditing (Endaya and Hanefah, 2013)

There are already exist much
of the research in this area which are determining the importance of the
auditing quality for financial reporting quality (Lawrence, j. et el 2016) and some research are
conducted for determining the importance of internal audit but some of the
research gap was indicated in those research papers as well for which author is
going to initiate our study. determinants of internal auditing quality are
performance and competence (Deribe, W J. 2014). That study indicates that there
is a significant gap in the area that this study concentrated only on the
banking sector so, future studies could investigate internal audit qualities of
other industries. The survey study carried out in this study was concentrated
on few variables, thus, future studies could incorporate including other
important variables in the study.

Current study is focused on analyzing and reviewing the
existing literature focused on determining the factors effecting Internal audit
quality, for that purpose, previous literature is gathered and from the
findings and limitations of those studies, 
author come to some conclusions and future research requirements.


Internal audit has become a crucial function within
organizations due to the recent series of corporate collapses and financial
scandals, and after that, several initiatives are being taken to conduct
researches to cope with the requirements of present situations but as per
requirement of the faculty, we had restricted the search of literature from
January 2010 to December 2017. Along that, few papers are gathered which are
published before 2010 just because those were too relevant with the current
research topic. Furthermore, we have preferred those papers which are
specifically identifying determinants and Importance of Internal Audit Quality.

For the purpose of finding the literature, we have mostly
used google scholar, but besides that we have also used some journals search
engines which are: Emerald insights, SAGE journals and Springer link. We also
checked the reference segments of the selected papers to find and include
additional important articles related to Internal audit Quality.

We have put the components of those papers in a table as
instructed by the faculty in such a way that the objectives, major findings,
limitations and future directions of every papers were separated and all the
literature was arranged in table in chronological order. for the purpose of
present study, a total of 20 papers were gathered, all having focused on
Internal audit quality and all of them are quantitative in nature.




A total of 20 papers were gathered, all having focused on
Internal audit quality and all of them are quantitative in nature. Each of the
research paper was representing some determinants of internal audit Quality,
and also the importance of internal audit function in an organisation

Mihret and Yismaw (2007) found that internal audit
effectiveness is intensely in?uenced by internal audit quality and management
support, however organizational setting and auditee traits do not have a solid
impact on audit efficiency. As the study was a case study so the
generalizability of the results is limited. Further research could be initiated
to fully understand the level of internal audit effectiveness in the Ethiopian
public sector as well as its private sector, and convincingly de?ning the
variables upsetting internal audit effectiveness in Ethiopia.

Schneider (2009) ?nds that probability of ?nding de?ciencies
impact internal audit work in some cases. But economic motivations such as
being ?red for creating poor planning decisions are absent in the paper.

Matarneh (2011) indicate that internal auditors in banks
consider the objectivity, competence and performance of internal auditors as
significant factors affecting the internal audit quality. This study
focused only on a particular bank also the variables are limited.

Salehi and Husini (2011) reveal that IT helps Auditor to improve
their performance. IT enables auditors to perform their duties with a higher
validity. But as the technology is so vast so the future studies could
investigate the side effects of use of technology in auditing process.

Stewart and Munro (2011) indicate that both factors affect
external auditors’ dependence on work already started by internal audit and their
use of internal auditors as helpers. The results also indicates that external
auditors are more likely to use internal audit for control appraisal tasks than
for functional tests of balances.

ONDIEKI (2013) revealed that there was greater change in
financial performance of commercial banks due to variations in internal audit
standards, independence of internal audit, professional competency and internal
control, this indicates that fluctuations in financial performance of
commercial banks could be accounted for by changes in internal audit
principles, independence of internal audit, professional competency and
internal control. further study to be conducted to define the challenges facing
internal audit in commercial banks, this will help in improving the internal audit
in the commercial banks and thus surely affecting their performance.

Deribe and Regasa (2014) indicate that internal auditors in
commercial banks consider the competence, performance and use of information
technology by internal auditors as substantial factors upsetting internal audit
quality. As a descriptive and regression result shows “performance” is the
highest cause factor of internal audit quality, tailed by “competence” and
“Information technology” respectively. This study concentrated only on the
banking sector, The survey study carried out and this study was concentrated on
few variable.

Baharud-din, Shokiyah and Ibrahim (2014) showed that there
were significant positive relationships between the auditor competency,
auditors’ independence and objectivity and management support to the
effectiveness of internal audit. The study was concentrated only on the banking

Alzeban (2014) show a positive association between
individualism and the quality of internal audit, showing that internal audit is
largely based on the undertakings of the individual internal auditors related to
the process. Evidence was found that organizations, in which power distance and
uncertainty avoidance are high, are characterized by lower quality or internal
audit. The study is limited to the fact that only three cultural dimensions are
taken into consideration, implication of this study is only in Saudi Arabia as
the culture is different in other countries/areas.

Matari, Swidi and Fadzil (2014) revealed a significant association
between qualification of internal auditor and firm performance. That study also
indicate that There is a notable absence of research in developed as well a
developing nations concerning the direct association of internal audit function
and firm performance.

Dahir and omar (2016) found that combination of internal
audit independence, internal audit quality, internal control system and audit
risk assessments causes variation in the organizational performance of the
remittance companies.

Endaya and Hanefah (2016) indicate that internal auditor’s
characteristics are clearly and significantly linked to internal audit
effectiveness, and senior management support is very vital in this relationship

Muchiri and Jagongo (2017) shows that internal auditing shows
a major role in the financial performance. The author found that the
relationship between the internal audit function existence and financial
performance was insignificant. That is, presence of internal auditing does not have
impact the profitability and return on investment.

While going through all the literature, we come to know that
all the literature is reflecting the importance of internal audit as well as
the most important factors that directly make impact on Internal audit Quality.
Those factors include competence of
internal auditor, objectivity of internal auditor, performance of internal
Auditor, Qualification of Internal auditor, use of information technology, Internal
Auditor’s Independence, Management support, Audit fees. It is also observed
that there is a difference of opinions between the authors to declare the most
importance factor among all those.


of Internal auditor

It is prominent that there are only few studies that inspected
the link between the qualification of internal audit and firm performance both
in developed countries and developing countries. There is also absence of
studies among the developing emerging market. According to agency theory and
resource dependence theory and their proponents, qualified persons aid to increase
firm performance because they have a strong vision about how to deal with
operation and attain their work with great excellence.

Audit fees.

Fees paid to auditors can affect audit quality, large fees
paid to auditors may rise the effort applied by auditors, hereafter, increasing
audit quality. Instead, high fees paid to auditors, mostly those that are linked
to non-audit services, make auditors more economically reliant on on their
clients. Such ?nancial support may induce a relationship whereby the auditor
becomes hesitant to make suitable inquiries during the audit for fear of losing
highly pro?table fees.

use of information

two research papers examined the effect of use of information
technology, The studies show that using IT causes notable changes in internal
auditing. According to these results, IT is generally used in performing
different stages of internal auditing, especially performing content tests   and  
in   the   process  
of   executing analytical inquiries
and main operations. The results disclose that: 

IT helps its users develop their performance. 

IT allows its users achieve their duties with a greater

IT helps them emphasis and have a good feeling for
their advancement.  

auditors can increase their advantage and their duties with a
higher quality by using IT. It helps auditing develop the quality of different features
of internal auditing.

of internal Auditor


The backing and commitment of management also have the definite
impact to make sure internal audit is working effectively. The success of internal
audit function will depend on the power of management’s support for the
auditing process.

Competence of
internal auditor

Two of the studies examined the effect of competence of
internal auditor on Internal audit quality. Competency can be relate to the capability
of an individual to achieve a job or assignment properly base on the
educational level, professional experience and the power of the staffs for enduring
professional improvement. Auditors’ competency implies the effective auditing
in the organization. It adds to the ability of the auditors to achieve the organized
and self-control audit approach to improve the efficiency of internal audit.

of variables


and Recommendations for Future Research



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