Determinants of Factors Affecting Internal Audit Effectiveness in Malaysia

Kek, Kang Foong (2024) Determinants of Factors Affecting Internal Audit Effectiveness in Malaysia. Final Year Project (Masters), Tunku Abdul Rahman University of Management and Technology.

Text 17. Kek Kang Foong (MAF).pdf Restricted to Registered users only Download (2MB)

Abstract

Internal audit is an important control mechanism to ensure governance, compliance, and improve internal control which is critical to help organisation to achieve their objectives and avoid agency cost either internal or external. Internal audit effectiveness (IAE) has drawn attention due to the increase in financial fraud, business risk, and business complexity in Malaysia. Despite the benefits and mandatory requirement of internal audit as stipulate by Bursa Malaysia, the key determinants affecting the effectiveness of internal audit in Malaysia remain unexplored. This study assesses the determinants affecting internal audit effectiveness in Malaysia, which include the competence of internal auditor, independence of internal audits, and management support for internal audit. The data was obtained from 131 internal auditors in Malaysia, of which 97 respondents were currently holding the position of internal auditor and the remaining 34 respondents had previously held the position of internal auditor in Malaysia. Data collected was first check with Cronbach’s Alpha value and exploratory factor analysis (EFA), and subsequently model linear regression is used to test the relationship between construct variables by using Statistical Package for Social Science (SPSS) software. The results revealed that internal audit effectiveness in Malaysia is influenced by various factors. Independence of internal audit and management support for internal audit share a significant and positive relationship among themselves, while also significantly and positively related to internal audit effectiveness. On the other hand, competence of internal auditors has found positive but weak correlations with management support for internal audit and internal audit effectiveness. Last but not least, management support for internal audit was also identified as a positive and significant mediator between competence of internal auditors and internal audit effectiveness, and between internal audit independence and internal audit effectiveness. In summary, this research affirmed that competence of internal auditors, independence of internal audit and management support for internal audit are positively related to the effectiveness of internal audit. This underscores the needs for organisations to cultivate an organisational culture that is supportive of internal auditing, ensure that the internal audit department has an appropriate budget, improve competence of internal auditors, enhance the functioning of internal audit, increase the independence of internal auditing, and reform the internal governance structure. Moreover, this study contributes to a deeper understanding on how management, organisational structure, and internal auditors affect the effectiveness of internal auditing