Assessment of Internal Auditing Position in the Private Sector in Nigeria: An Applied Study

  • Abdulkadir Madawaki Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
  • Aidi Ahmi Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia https://orcid.org/0000-0002-8488-6966
  • Halimah @ Nasibah Ahmad Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
Keywords: competency, independence, work performance, internal control activities, internal and external auditors coordination, Nigeria

Abstract

The significance of quality internal auditing has received serious attention in both regulatory and public attention in recent years. Essential elements of organisation internal auditing are competency, independence, quality of work performed, risk-based internal audit, internal control activities and coordination between internal and external auditors. The objective of this study is to examine the position of these quality attributes of IA in the Nigerian private sector following the recent regulatory changes. The survey questionnaire was personally administered on internal auditors using a sample of ninety-seven organisations listed on the Nigerian Stock Exchange (NSE) to collect information for the period December 2018 to July 2019. The findings show that all the variables are free from multicollinearity and the results of the descriptive statistics of mean and standard deviations provide that all the respondents seem to agree with the statements regarding the variables. Finally, the paper provided limitation of the study and direction for future research.

References

Abbott, L. J. Daugherty, B. Parker, S. & Peters, G. F. (2016). Internal Audit Quality and Financial Reporting Quality: The Joint Importance of Independence and Competence. Journal of Accounting Research, 54(1), 3–40.

Abdallah, S. (2018). External auditor type, discretionary accruals and investor reactions. Journal of Accounting in Emerging Economies, 8(3), 352–368.

Abdullatif, M. & Kawuq, S. (2015). The role of internal auditing in risk management: evidence from banks in Jordan. Journal of Economic and Administrative Sciences, 31(1), 30–50.

Ackermann, C. & Marx, B. (2016). Internal audit risk management in metropolitan municipalities. Risk Governance & Control: Financial Markets & Institutions, 6(3), 45–51.

Adel, B. & Maissa, T. (2013). Interaction Between Audit Committee and Internal Audit: Evidence from Tunisia. IUP Journal of Corporate Governance, 12(2), 59–80.

AICPA. (1991). American Institute of Certified Public Accountant: AU Section 322: SAS 65. The auditor Consideration of Internal Audit Function in an Audit of Financial Statements. New York.

Al-Qadasi, A. Abidin, S. & Al-Jaifi, H. (2019). The puzzle of internal audit function budget toward specialist auditor choice and audit fees: Does family ownership matter? Managerial Auditing Journal, 34(2), 208–243.

Al-Shetwi, M. Ramadili, S. M. Chowdury, T. H. S. & Sori, Z. M. (2011). Impact of internal audit function (IAF) on financial reporting quality (FRQ): Evidence from Saudi Arabia. African Journal of Business Management, 5(27), 11189–11198.

Al-Twairy, A. A. Brielrley, J. & Gwilliam, D. (2003). The development of internal auditing in Saudi Arabia. An institutional theory perspective. Critical Perspectives on Accounting, 14, 507–531.

Alhajri, M. (2017). Factors associated with the size of internal audit functions: evidence from Kuwaiti. Managerial Auditing Journal, 32(1), 75–89.

Ali, A. M. Gloeck, J. Ali, A. Ahmi, A. & Sahdan, M. (2007). Internal audit in the state and local governments of Malaysia. Southern African Journal Of Accountability and Auditing Research, 7, 25–57.

Alktani, S. & Ghareeb, A. (2014). Evaluation of the quality of the internal auditing position in the public sector in Saudi Arabia: An applied study. Global Review of Accounting and Finance, 5(1), 93–106.

Alqudah, H. Amran, NA & Hassan, H. (2029). Factors affecting the internal auditors’ effectiveness in the Jordanian public sector: The moderating effect of task complexity. Euromed Journal of Business, 14(3), 251–273.

Arena, M. & Azzone, G. (2009). Identifying organisational drivers of internal audit effectiveness. International Journal of Auditing, 13, 43–60.

Blue Ribbon Committee. (1999). Report and recommendations of Blue Ribbon Committee on Improving the effectiveness of corporate audit committee.

CCG. (2016). Financial Reporting Council (FRC) of Nigeria National Code of Corporate Governance.

Chatterjee, S. & Yilmaz, M. R. (1992). Chaos, fractals and statistics. Statistical Science, 49–68.

Chernick, M. R. (2011). Bootstrap methods: A guide for practitioners and researchers (619th ed.). John Wiley & Sons.

Christopher, J. Sarens, G. & Leung, P. (2009). A critical analysis of the independence of the internal audit function: evidence from Australia. Accounting, Auditing & Accountability Journal, 22(2), 200–220.

Cooper, B. Leung, P. & Matthews, C. (1996). Benchmarking - a comparison of internal audit in Australia, Malaysia and Hong Kong. Managerial Auditing Journal, 11(1), 23–29.

Coram, P. Ferguson, C. & Moroney, R. (2008). Internal audit, alternative internal audit structures and the level of misappropriation of assets fraud. Accounting & Finance, 48, 543–559.

COSO. (2006). Committee of Sponsoring Organisations of the Treadway Commission.

COSO. (2011). (Committee of Sponsoring Organisations of the Treadway Commission: “Internal control –integrated framework.”

Davidson, R. Goodwin-Stewart, J. & Kent, P. (2005). Internal governance structures and earnings management. Accounting and Finance, 45(2), 241–267.

Desai, V. Roberts, R. & Srivastava, R. (2010). An analytical model for external auditor evaluation of the internal audit function using belief foundation. Contemporary Accounting Research, 27(2), 537–575.

Endaya, K. A. & Hanefah, M. M. (2016). Internal auditor characteristics, internal audit effectiveness, and moderating effect of senior management. Journal of Economic and Administrative Sciences, 32(2), 160–176.

FRA. Financial Reporting Act: Federal Republic of Nigeria Official Gazette. Printed and Published by the Federal Government Printer, Lagos, Nigeria FGP104/82011/2,200 (OL 50) (2012).

Goodwin-Stewart, J. & Kent, P. (2006). “The use of internal audit by Australian companies.” Managerial Auditing Journal, 21(1), .81-101.

Goodwin, J. & Yeo, T. Y. (2001). Audit Independence and Objectivity: Evidence from Singapore. International Journal of Auditing, 125(May), 107–125.

Gras-Gil, E. Marin-Hernandez, S. & Garcia-Perez de Lema, D. (2012). Internal audit and financial reporting in the Spanish banking industry. Managerial Auditing Journal, 27(8), 728–753.

Gros, M. Koch, S. & Walker, C. (2017). Internal audit function and financial reporting: results of survey on German listed companies. Journal of Management and Governance, 21, 291–329.

Hair, J.F Anderson, R. & Tatham, R. (2010). Multivariate data analysis (7TH ED). Upper Saddle River, N.J: Pearson Prentice Hall.

Hair, Joe F, Ringle, C. M. & Sarstedt, M. (2011). PLS-SEM: Indeed a silver bullet. Journal of Marketing Theory and Practice, 19(2), 139–152.

Iyoha, F. O. (2011). Quoted companies attributes and the reliability of financial reporting in Nigeria. ICAN Journal of Accounting and Finance., 1(3), 12–23.

Jachi, M. & Yona, L. (2019). The impact of professional competence and staffing of internal audit function on transparency and accountability: Case of Zimbabwe local authorities. Research Journal of Finance and Accounting, 10(8), 149–164.

Johl, S. Johl, SK, Subramaniam, N. & Cooper, B. J. (2013). Internal audit function, board quality and financial reporting quality: evidence from Malaysia. Managerial Auditing Journal, 28(9), 780–814.

Kabuye, F. Nkundabanyanga, S. Opiso, J. & Nakabuye, Z. (2017). Internal audit organisational status, competencies, activities and fraud management in the financial service sector. Managerial Auditing Journal, 32(9), 924–944.

Kantudu, A. S. & Samaila, I. A. (2015). Board Characteristics, Independent Audit Committee and Financial Reporting Quality of Oil Marketing Firms: Evidence from Nigeria. Journal of Finance, Accounting and Management, 1(July), 34–50.

Khlif, H. & Samaha, k. (201AD). Audit committee activity and internal control quality in Egypt: Does external auditor size matter? Managerial Auditing Journal, 31(3), 269–289.

Koo, D. S. Ramalingegowda, S. & Yu, Y. (2017). The effect of financial reporting quality on corporate dividend policy. Review of Accounting Studies, 22(2), 753–790.

Krishnanmoorthy, G. (2002). A multistage approach to external auditor’s evaluation of the internal audit function. Auditing: A Journal of Practice & Theory, 21(1), 95–122.

Lakovic, T. Smolovic, J. & Stanovcic, T. (2016). The internal audit function and the quality of financial reporting: empirical evidence from Montenegro. In MIC: Management International Conference. Pula. Croatia (pp. 95–109).

Lewington, D. (1996). “2020 Vision.” Managerial Auditing Journal, 11(7), 3.

Mihert, D.G, James, K, & Joseph, M. (2010). Antecedents and organisational performance implications of internal audit effectiveness: some propositions and research agenda. Pacific Accounting Review, 22(3), 224–252.

Mihert, D.G, & Woldeyohannis, G. (2008). Value-added role of internal audit: An Ethiopian case study. Managerial Auditing Journal, 23(6), 567–595.

Mihert, D.G & Yismaw, A. W. (2007). Internal audit effectiveness: An Ethiopian public sector case study. Managerial Auditing Journal, 22(5), 470–484.

Mohamed, Z. Zain, M. M. Subramaniam, N. Fadzilah, W. & Yusoff, W. (2012). Internal Audit Attributes and External Audit’ s Reliance on Internal Audit: Implications for Audit Fees. https://doi.org/10.1111/j.1099-1123.20

Obeid, A. (2007). Evaluating the strength of the internal audit function: the case of Sudanese banks. John Mores University Business School Liverpool.

Page, M. & Spira, L. (2004). The Turnbull Report, Internal Control and Risk Management: The Developing Role of Internal Audit”.

Pallant, J. (2010). SPSS survival manual (4th Edition). England: McGraw-Hill Education.

PCAOB. (2007). An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements, Auditing Standard No 5, Public Company Accounting Oversight Board, Washington DC.

Prawitt, D. F. Smith, J. L. & Wood, D. A. (2009). Internal Audit Quality and Earnings Management. The Accounting Review, 84(4), 1255–1280.

ROSC. (2011). Report on the observance of standard and codes (Nigeria), accounting and auditing Published June 6, 2011, by a team of the World Bank.

Sarens, G. Lenz, R. & Decaux, L. (2016). Insights into self-images of internal auditors. EDPACS: The EDP Audit, Control, and Security Newsletter., 54(4), 1–18.

Schneider, A. (1984). Modelling external auditors evaluations of internal auditing. Journal of Accounting Research, 22(2), 657–678.

SOX. (2002). SOX (Sarbanes-Oxley Act), 2002, “Sarbanes-Oxley Act of 2002”, Public Law 107-204, 107th Congress, available at www.sarbanes-oxley.com. USA.

Tabachnick, B. G. & Fidell, L. S. (2007). Using multivariate statistics (5th Edition). Needham Height, MA: Allyn & Bacon.

Tušek, B. (2015). The influence of the audit committee on the internal audit operations in the system of corporate governance – evidence from Croatia. Economic Research-Ekonomska Istraživanja, 28(1), 187–203.

Utami, H. (2016). A case study of internal auditing practice in a State-Owned Enterprise in Indonesia. University of Wollongong Thesis Collection Australia.

Verschoor, C. C. (2002). Reflections on the audit committee roles. Internal Auditor, 59(April), 26–35.

Wah, T. L. (2011). An empirical study of the effectiveness of internal control over financial reporting: the effect of audit committee quality and participation in IT governance. City University of Hong Kong. City University of Hong Kong.

West, S. G. Aiken, L. S. & Todd, M. (1993). Probing the effects of individual components in multiple component prevention programs. American Journal of Community Psychology, 21(5), 571–605.

Published
2019-07-01
How to Cite
Madawaki, A., Ahmi, A., & Ahmad, H. @ N. (2019). Assessment of Internal Auditing Position in the Private Sector in Nigeria: An Applied Study. Indian-Pacific Journal of Accounting and Finance, 3(3), 4-13. https://doi.org/10.32890/ipjaf.2019.3.3.77
Section
Main Section