Impact Evaluation of Factors of Internal Audit on Intrnal Audit Effectiveness: The Moderating and Mediating Effect of Ethical Culture and Internal Controls

Abstract

The objective of this paper is to investigate the impact of independence, management support and external auditors’ cooperation on Effectiveness of Internal Audit. It also investigates the moderating effect of ethical culture and mediating effect of internal controls, between major factors of internal audit (independence, management support and external auditors’ cooperation) and Effectiveness of Internal Audit in private sector of Pakistan. Cross-sectional design was used in this study. Four hundred and eighty (480) questionnaires were distributed among the auditors in the chartered accountants’ firms of Pakistan situated in Lahore on convenience basis.  Sixty-one (61) indicators were measured on five-point Linkert scale from one which refers to strongly disagree to five which denotes strongly agree.  PLS-SEM is used for the analysis of the data. The results show that there is positive relationship between two factors of internal audit (independence and external auditors’ cooperation) and internal controls while the third factor, management support has no relationship. Moreover, the findings show that ethical culture has no moderating effect on the association between internal control system and internal audit effectiveness. Similarly, internal controls positively mediate the relationship between two factors of internal audit (independence and external auditors’ cooperation) and Effectiveness of Internal Audit. Moreover, it demonstrates the value of independence and the collaboration of external auditors in enhancing the efficiency of internal auditing and business performance. The results of this study will direct business entities and other organizations to improve the internal controls for enhancing the effectiveness of internal audit and focus on independence of IAD and external auditors’ cooperation with internal auditors as these factors are very important for getting results from internal audit department in order to achieve goals.