Factors influencing stakeholder’s judgment on internal audit function’s effectiveness and reliance

Abstract

Purpose

This study aims to explore the effectiveness and reliability of the performance of internal auditor by the stakeholders for their decision making. The absence of rules and regulations generates the debate that the non-standard reporting of the assessment of the internal controls system’s assessment by internal auditor and reliance by the external auditor.

Design/methodology/approach

The study used the mixed-method (triangulation) for the analysis quantitative data was used for regression with Smart PLS 3.2.8, and the qualitative data was used to prove and strengthen the results. The data is collected for five IVs (Objectivity of IAF, Work Performance, Competence, Internal Control System’s Assessment and Sourcing of IAF) and their impact on two DVs (Effectiveness and Reliance). This study used five areas as the target audience (Internal Auditor, External Auditor, Professional bodies, Shareholders, SECP and SBP). A total of 150 respondents were approached and received a valid response of 98 respondents.

Findings

The study explores the positive relationship between Objectivity of IAF, Work Performance, Competence, Sourcing of IAF on Effectiveness and Reliance. Internal Control System’s Assessment having significant relation with Effectiveness and non-significant with reliance because the absence of rules makes it unreliable for stakeholders.

Originality/value

The study found that the system for reporting the internal control needs rules and regulations advancement on the immediate basis for the betterment and safeguard of stakeholders to avoid the events like WorldCom and ENRON.

Citation

Ashfaq, K., Rehman, S.U., Haq, M.U. and Usman, M. (2023), "Factors influencing stakeholder’s judgment on internal audit function’s effectiveness and reliance", Journal of Financial Reporting and Accounting, Vol. 21 No. 5, pp. 958-973. https://doi.org/10.1108/JFRA-12-2020-0371