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Purpose The purpose of this paper is to introduce a framework that presents how internal audit effectiveness can be operationalized and what factors are available to influence the effectiveness. Internal audits have become one of the key practices for organizations to control the adherence of their processes to standard procedures and regulations. The benefits of conducting internal audits are well acknowledged in the literature. However, it is difficult for organizations to assess the effectiveness of internal audits and to understand the factors that influence audit effectiveness. Design/methodology/approach A systematic literature review was conducted to identify relevant publications and collect and synthesize evidence on the operationalization of internal audit effectiveness and the factors that potentially influence the effectiveness of internal audits. Findings A thorough analysis of the relevant studies resulted in a comprehensive list of indicators used for the operationalization of audit effectiveness and a list of potentially influencing factors. The results of the systematic review are synthesized into a framework. Research limitations/implications The researchers should consider this study as a comprehensive source that offers pointers on the factors investigated in the literature and a basis for future research in this field to address the gaps that are identified. Practical implications Awareness about how the effectiveness of internal audits can be measured, and the factors that can potentially influence this effectiveness can help organizations to understand their current performance and ultimately improve it in the future. Originality/value The contributions of this study will help in better understanding the state of the research on internal audit effectiveness, including the influential factors, and gaps and opportunities for future research.

Internal auditors perform work that is relevant to their host entities' financial reporting processes; yet, little research attention has focused on the effects of internal auditing on companies' external financial reporting. Using a unique and previously unavailable data set, we investigate the relation between internal audit function (IAF) quality and earnings management. We measure IAF quality using a composite measure comprising six individual components of IAF quality based on SAS No. 65, which guides external auditors in assessing the quality of an IAF with respect to its role in financial reporting. Earnings management is measured using two separate proxies: (1) abnormal accruals and (2) the propensity to meet or barely beat analysts' earnings forecasts. We find evidence that IAF quality is associated with a moderation in the level of earnings management as measured by both proxies.

This study examines how using the internal audit function (IAF) as a management training ground (MTG) affects external audit fees and the external auditors' perceptions of the IAF. Over half of all companies that have an IAF specifically hire internal auditors with the purpose of rotating them into management positions (or cycle current employees into the IAF for a short stint before promoting them into management positions). Using archival data, we find that external auditors charge higher fees to companies that use the IAF as a MTG. Using an experiment, we provide evidence as to why fees are higher. Specifically, we find that external auditors perceive internal auditors employed in an IAF used as a MTG to be less objective but not less competent than internal auditors employed in an IAF not used as a MTG. These results have important implications for the many companies that use their IAF as a MTG.

PurposeThis paper reviews the field of internal auditing (IA) post-Enron to develop insights into how IA research has developed, offer a critique of the research to date and identify ways that future research can help to advance IA.Design/methodology/approachA structured literature review (SLR) was used to analyse 471 papers from 64 journals published between 2005 and 2018 based on a number of criteria, namely author, journal type, journal location, year, theme, theory, nature of research, research setting, regional focus, method and citations.FindingsThe IA literature has not significantly contributed to knowledge of the internal audit function (IAF), and one still knows relatively little about the factors that contribute to making the impact of IA practice effective and measurable. The IA literature is US-dominated (authors and journals), focussed on the American context (publicly listed companies), reliant on positivist analyses and largely makes no explicit reference to theory. Central regions (emerging economies) and key organisational settings (private SMEs and not-for-profit organisations) are largely absent in prior IA research. This paper evaluates and identifies avenues through which future research can help to advance IA in order to address emerging challenges in the field.Originality/valueThis is the first comprehensive review to analyse IA research in the post-Enron period (2005–2018). The findings are relevant to researchers who are looking for appropriate research outlets and emerging scholars who wish to identify their own research directions.

This study investigates the role that a firm's internal audit function (IAF) plays in the disclosure of material weaknesses reported under Section 404 of the Sarbanes-Oxley Act of 2002 (U.S. Congress 2002). Using data from 214 firms, we examine the relation between material weakness (MW) disclosures and various IAF attributes and activities. Our results indicate that MW disclosures are negatively associated with the education level of the IAF and the extent to which the IAF incorporates quality assurance techniques into fieldwork, audits activities related to financial reporting, and monitors the remediation of previously identified control problems. The timing of Section 404 work and the nature of follow-up monitoring suggests that these aspects of IAF quality help prevent MWs from occurring. We find that MW disclosures are positively associated with the IAF practice of grading audit engagements and external-internal auditor coordination, suggesting that these activities increase the effectiveness of Section 404 compliance processes.

This study of internal auditors and auditees, who engage in both financial and operational internal audits in Israel, extends theory and research on internal audits in organizational units. It develops and tests a model that examines the role of top management and internal auditors in facilitating learning from internal audits and driving perceived performance improvement. We argue that support from the top management for the internal audit as well as the auditor's capacity (skills, resources, and behaviors) facilitate learning from audits and help audited units to improve ethicality, efficiency, and effectiveness in organizations. The results of time-lagged survey data provide general support for the hypothesized indirect relationships between auditor capacity, auditor-auditee relational exchanges, learning from audits, and three different perceived performance measures: ethical behavior, efficiency, and effectiveness. We discuss the implications for research on internal audits, proactive learning, ethics, and performance improvement of organizational units in the public sector.

Standard-setters believe high-quality internal audit functions (IAFs) serve as a key resource to audit committees for monitoring senior management. However, regulators do not enforce IAF quality or require disclosures relating to IAF quality, which is in stark contrast to regulatory requirements placed on boards, audit committees, and external auditors. Using proprietary data, I find that a composite measure of IAF quality is negatively associated with the likelihood of management misconduct even after controlling for board, audit committee, and external auditor quality. This result is robust to a variety of other specifications, including controlling for internal control quality and separate estimation during the pre- and post-SOX time periods. A difference-in-differences analysis indicates that misconduct firms have low IAF quality and competence during misconduct years and improve IAF quality and competence in the post-misconduct years. These findings suggest that regulators, audit committees, and other stakeholders should consider ways to improve IAF quality.

Purpose: The purpose of this study is to establish causal relationships between internal review quality, digital transformation, and the credibility of financial reports. Standardization, organizational reliance, independence, the advent of online transformation, and the function of internal auditing in risk assessment and the enhancement of financial reporting have all seen significant changes over time. Internal audit plays a critical role in ensuring the accuracy of a company's financial statements and performance reports. To boost the trustworthiness of financial accounts, it is crucial to invest in the research and development of more efficient techniques of internal auditing.   Theoretical framework: Virtual Transformation Improves Internal Audits and Financial Reporting Quality In order to ensure people's safety during the digital revolution, the study's authors recommended setting up new rules and regulations to regulate the practice of internal audit. To cut expenses, the publication suggested digitizing all corporate procedures. To thrive in today's highly technical environment, the auditing sector will need to implement novel strategic work techniques and organizational structures. Otherwise, they'll have a hard time justifying their expenditures.   Design, technique, and approach: Standardized surveys were used to acquire the primary data. There were 112 total questionnaires sent out, and only 79 were returned with the required information. Social science statistical package SPSS was used to evaluate the data and produce a 95% confidence interval for the estimation of digitalization's to the standard of quality of internal audits and financial-reporting.   Findings: The results appears that there is no statistically meaningful connection between How well internal audits are conducted and how quickly digital transformations are implemented.; no digital transformation mechanisms elevate the standard of accounting reports. The quality of internal audits and the quality of financial reports do not appear to have any statistically significant relationship in light of the digital shift.   Implication: This research might be a beneficial resource for anybody interested in the study of the rise of the digital age on the financial industry and the link between it and the internal review quality to enhance the company's internal auditing and reporting for better performance.   Originality/ Value: The originality/value of changes in the way risks are evaluated and reported, the sophistication of online transformation and its impact on internal auditing standards, and Subject areas that would benefit from empirical research include the history of online transformation generally, and the evolution of online transformation specifically. Keeping investors and other stakeholders updated on the company's financial health and performance metrics is impossible without regular internal audits. In order to improve the accuracy of financial reports, it is essential to conduct more thorough internal audits. Since much of the research on this topic has been done in other countries or regions, this one is woefully underexplored. Purpose: The purpose of this study is to establish causal relationships between internal review quality, digital transformation, and the credibility of financial reports. Standardization, organizational reliance, independence, the advent of online transformation, and the function of internal auditing in risk assessment and the enhancement of financial reporting have all seen significant changes over time. Internal audit plays a critical role in ensuring the accuracy of a company's financial statements and performance reports. To boost the trustworthiness of financial accounts, it is crucial to invest in the research and development of more efficient techniques of internal auditing.   Theoretical framework: Virtual Transformation Improves Internal Audits and Financial Reporting Quality In order to ensure people's safety during the digital revolution, the study's authors recommended setting up new rules and regulations to regulate the practice of internal audit. To cut expenses, the publication suggested digitizing all corporate procedures. To thrive in today's highly technical environment, the auditing sector will need to implement novel strategic work techniques and organizational structures. Otherwise, they'll have a hard time justifying their expenditures.   Design, technique, and approach: Standardized surveys were used to acquire the primary data. There were 112 total questionnaires sent out, and only 79 were returned with the required information. Social science statistical package SPSS was used to evaluate the data and produce a 95% confidence interval for the estimation of digitalization's to the standard of quality of internal audits and financial-reporting.   Findings: The results appears that there is no statistically meaningful connection between How well internal audits are conducted and how quickly digital transformations are implemented.; no digital transformation mechanisms elevate the standard of accounting reports. The quality of internal audits and the quality of financial reports do not appear to have any statistically significant relationship in light of the digital shift.   Implication: This research might be a beneficial resource for anybody interested in the study of the rise of the digital age on the financial industry and the link between it and the internal review quality to enhance the company's internal auditing and reporting for better performance.   Originality/ Value: The originality/value of changes in the way risks are evaluated and reported, the sophistication of online transformation and its impact on internal auditing standards, and Subject areas that would benefit from empirical research include the history of online transformation generally, and the evolution of online transformation specifically. Keeping investors and other stakeholders updated on the company's financial health and performance metrics is impossible without regular internal audits. In order to improve the accuracy of financial reports, it is essential to conduct more thorough internal audits. Since much of the research on this topic has been done in other countries or regions, this one is woefully underexplored.

The paper focuses on analyzing key factors influencing the effectiveness of internal audit in the public sector of Bosnia and Herzegovina (BiH). Through multiple regression analysis (Ordinary Least Squares-OLS), the impact of five independent variables (competence of internal auditors, size of internal audit department, relationship between internal and external auditors, management support for internal audit, and independence of internal auditors), two control variables (organization’s sector and total number of employees in the organization), on the dependent variable (effectiveness of internal audit) was measured. Research results indicate that a significant portion (.2 = 45.00%, Adj .2 = 40.90%) of the variability in the effectiveness of internal audit can be explained by the variability of the five independent variables in the model. The largest positive impact on the effectiveness of internal audit is attributed to the size of the internal audit department and the independence of internal auditors. Conversely, management support for internal audit had the least impact, which contradicts our predictions and the results of previous research. The limited impact of management support on the effectiveness of internal audit in the public sector of BiH may stem from a lack of understanding regarding the role and importance of internal audit, as well as from perceiving it as merely a formal legal requirement without substantial value.

Professional standards guide external auditors to consider the effect of the client's internal audit work and opportunities to utilize the direct assistance of the internal audit function when planning and conducting audits. We examine the effect of internal audit assistance on external audit timeliness via the extent of external audit delay. We hypothesize and find that internal audit assistance is negatively associated with external audit delay. We also document moderating relationships between internal audit assistance and other internal audit environment characteristics, such as the extent of internal control reliance, coordination with the external auditor, and the investment in internal audit quality. Overall, our findings have implications for firms and external auditors who are evaluating the role and use of internal audit functions. Namely, our findings suggest that internal audit assistance may not only result in audit cost savings, but also in greater audit efficiencies. These findings are particularly germane given the challenges faced by external auditors in the form of greater audit requirements, shorter regulatory filing deadlines, resource constraints, and audit fee pressures.