The Internal Audit Function: Perceptions of Internal Audit Roles, Effectiveness, and Evaluation

Abstract

Purpose: The aim of this exploratory study is to provide insights into the current roles and responsibilities of the internal audit (IA) function and the factors perceived to be necessary to ensure its effectiveness. The current performance evaluation practices of IA are also examined.

Design/Methodology/Approach: Semi-structured interviews were utilised to elicit the perceptions of key corporate governance actors about the evolving role of IA, as well as IA effectiveness, in terms of its design, measurement, and evaluation.

Findings: The results of the study suggest significant expansion and refocus of the role of IA and perceptions of its effectiveness. However, the findings also suggest that performance evaluation mechanisms of IA have not evolved contemporaneously. The misalignment between the role and evaluation gives rise to difficulty in assessing the extent to which IA functions are meeting stakeholders’ expectations.

Practical Implications: The findings are useful in informing the deliberations of regulators and standard setters, as well as providing a benchmark for internal auditors and audit committees. The insights are also relevant for external auditors who are required to consider various aspects of corporate governance, including the objectivity and quality of IA.

Originality/Value: The use of semi-structured interviews facilitates an in-depth insight and understanding of the perceptions of roles, effectiveness and evaluation of IA and adds depth to the predominantly questionnaire based survey approach of prior studies.

Keywords: internal audit, corporate governance, audit committee, performance evaluation, Australia