Managerial Auditing Journal

Drivers of stakeholders’ view of internal audit effectiveness: Management versus

audit committee
Lourens Erasmus, Philna Coetzee,
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Lourens Erasmus, Philna Coetzee, (2018) "Drivers of stakeholders’ view of internal audit
effectiveness: Management versus audit committee", Managerial Auditing Journal, https://
doi.org/10.1108/MAJ-05-2017-1558
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Drivers of stakeholders’ view View

of internal audit effectiveness of
audit
internal

Management versus audit committee effectiveness

Lourens Erasmus and Philna Coetzee
University of South Africa, Pretoria, South Africa

Abstract
Purpose – The purpose of this study is to determine the differences in perception of the key stakeholders
on the drivers of internal audit effectiveness, namely, senior management and the audit committee, in
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relation to identified measures. To be seen as an effective internal audit function, value needs to be added
for both these stakeholders. It is thus important for internal auditing to obtain an understanding of what
these stakeholders respectively perceive as the most prominent drivers of internal audit effectiveness.
Design/methodology/approach – Heads of internal audit functions (providing insight into the drivers),
chairpersons of audit committees and senior management (providing insight into the measures) within the
South African public sector responded to a survey. The data were subjected to an exploratory factor
analysis and principal component analysis to reduce the set of items and to provide continuous scores for
use in a multivariate multiple regression analyses.
Findings – Senior management and the audit committee differ in their level or order of prominence of the
identified drivers that influence the identified measures of internal audit effectiveness. No statistical
similarities in their level of views could be found.
Originality/value – To enhance the effectiveness of internal auditing, the internal audit functions should
take cognisance of the difference in perceptions of its key stakeholders on the drivers of internal audit
effectiveness, in relation to identified measures, to manage these relationships. No previous research could
find that statistically compared views of senior management and the audit committee regarding the drivers
of internal audit effectiveness.
Keywords Senior management, Audit committee, Internal audit effectiveness, Regression analysis,
Internal audit stakeholders, Drivers and measures
Paper type Research paper

Introduction
“We can audit anything, but not everything”. These are the words of the CEO of the
Global Institute of Internal Auditors (IIA) with close to 200,000 members worldwide
(Chambers, 2014a). This was the IIA’s response to the question that is asked when
catastrophe strikes – where were the auditors? The involuntary question “Where were the
auditors?” is testimony of the expected role and growing importance of internal auditing as
a governance mechanism within the institutional domain (Mihret and Yismaw, 2007; Van
Gansberghe, 2005). With this growth in internal audit importance, the magnifying glass of
the past two decades that scrutinised aspects of internal auditing, such as its place in and
recognition by the organisation, and its roles, responsibilities and contributions to internal
and external stakeholders, has now moved on to obtain an understanding of the value that
it brings to the organisation. In other words: Is internal auditing effective in achieving its
objectives – knowing what to audit and not necessarily auditing “everything”?
Answering the question is not an easy task, as debated by Steers (1975), that it is nearly
impossible to measure effectiveness. With internal auditing’s true value most probably Managerial Auditing Journal
© Emerald Publishing Limited
0268-6902
DOI 10.1108/MAJ-05-2017-1558
 MAJ hidden in the fact that its mere existence could be an encouragement for employees and
management to conduct their activities with care and precision (Coram et al., 2008),
measuring its effectiveness becomes challenging. Against this background, many
researchers have provided insight into what internal audit effectiveness entails and how to
measure it. However, it seems the answer to the question on internal audit effectiveness is
elusive, based on the number of scholars still scrutinising the topic and new knowledge
being added to the topic on a regular basis.
Within a South African context, the internal audit profession has grown exponentially,
with the IIA in South Africa now being the largest chapter outside the American and
South African internal auditors viewing their status and the quality of their activities as on
par with the growth in numbers (Coetzee et al., 2015). South Africa is a country with a
sound theoretical governance basis, as supported by:
● the King reports on governance (IoD 2016, 2009, 2002, 1994) that are recognised
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by many international scholars as leading guidance documents (Atkins et al., 2015;

Jones and Solomon, 2013; Jackson, 2005); and
● government legislating an effective internal audit function (IAF) (RSA 2005:
Sec3.1.10; RSA 2003:Sec62.1[c][ii]).

Yet, the South African Government is constantly being accused (BusinessTech, 2016) of
mismanagement, fraud and corruption, to name a few, all of which an effective IAF could
and should prevent by assisting sound governance and enforcing accountability.
Consequently, the effectiveness of the current South African public sector IAFs may be
questioned.
Theoretically, with many governance documents and legislations including an effective
IAF as part of sound governance, the profession’s standing has evolved beyond being an
assurance provider. The question remains whether in practice, as perceived by internal
auditing’s key stakeholders, the same opinion is held – is the IAF seen as effective, and
what drives internal audit effectiveness for these stakeholders? Many studies (Grant
Thornton, 2015; PwC, 2014; IIA, 2014; Deloitte, 2010) conclude, and individuals
(Chambers, 2014b) are of the opinion, that the expectation gap between internal auditing
and its stakeholders is widening. This is echoed by the IIA (2014) in a research document,
where one of the top five strategies of internal auditing is to focus on the alignment of
activities, with the expectations of key stakeholders. It is thus important for internal
auditing, to be truly effective, to know who their stakeholders are and what their
expectations are.
Internal auditing has many stakeholders (IIA, 2012), with most of these being
interdependent. The two most prominent parties (IIA-Australia, 2016; Abdolmohammadi
et al., 2013) are:
(1) senior management, to whom the head of the IAF (also referred to as the Chief
Audit Executive or CAE) mostly reports administratively – where the chief
executive is referred to as the Accounting Officer (AO) in the South African
Government; and
(2) the chairman of the audit oversight body of the executive authority, to whom the
CAE mostly reports functionally – also referred to as the chairperson of the audit
committee (CAC).

To be seen as an effective IAF, value needs to be added for both these stakeholders.
However, research has revealed that the expectations of these two stakeholders of the IAF
could be in conflict with one another (Hoos et al., 2013; Roussy, 2013; Deloitte, 2010).
 According to professional guidance (IIA, 2017), the IAF must assist the AO to achieve the
institution’s objectives (mainly through a consultative approach), but at the same time View
provide assurance to the executive authority, via the oversight body, that management is of internal
fulfilling their mandate. Roussy (2013), in her study, investigated this phenomenon within audit
Canadian public sector organisations and concluded that it leads to an adaptation of the effectiveness
IAF independence to perform its function – something she calls “grey independence”. An
interesting finding from Roussy (2013) is that the IAF consciously chose to place the
needs of senior management above those of the audit committee, thereby weakening the
governance role as expected by the IIA (2017). To narrow the expectation gaps, internal
auditing needs to plan and execute its duties in such a manner that both these stakeholders’
needs are met, but without jeopardising the IAF’s independence and professionalism (IIA,
2017). It is thus important for internal auditing to obtain an understanding of what these
stakeholders perceive to drive internal audit effectiveness. Although many studies have
been conducted on internal audit effectiveness, none statistically compared the perceptions
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of the key stakeholders in terms of the drivers of internal audit effectiveness. Furthermore,
very few studies have been conducted in the public sector and/or included the views of
various stakeholders.
Therefore, the research objective of this study is to determine the differences in
perception of the two main IAF stakeholders on the drivers of internal audit effectiveness
in relation to identified measures. If the perceptions do not differ significantly, it can be
concluded that internal auditing may have a single approach in satisfying the needs of both
stakeholders and thereby enhancing their perceived effectiveness. However, if differences
exist between the perceptions of these stakeholders, internal auditing can use this
information to assess and narrow the individual expectation gaps. Focusing on the
potential differences in importance of drivers of internal audit effectiveness for each
stakeholder, may improve the respective perceptions on internal audit effectiveness. If
management perceive internal auditing to be effective, they will value internal auditing’s
contribution in strengthening operational activities and improving governance. If the audit
committee perceives internal auditing to be effective, they will rely on the assurance
provided by internal auditing and through this strengthen the audit committee’s
accountability role. This may lead to the mitigation of current challenges of poor
governance and inadequate accountability in the South African public sector. Although
this study was conducted in the South African public sector, the results could be valuable
to all sectors and countries as the key stakeholders of the IAF are universal.
The structure of this article is as follows: first, review of prior research and
conceptualisation of concepts; second, discussion of the research method; third, data
obtained and the development of the regression model; and fourth, presenting the results
and conclusion.

Literature review and conceptualisation

In this section, the drivers and measures of internal audit effectiveness, and how the key
stakeholders of the IAF, namely, senior management and the audit committee (IIA-
Australia, 2016; Abdolmohammadi et al., 2013) are linked to the IAF, are discussed. The
research question is placed in the context of the theoretical underpinning used in this
study, namely, a stakeholder theory from an internal auditing perspective that focusses on
stakeholder relationship management. This adaptation of the stakeholder theory is similar
to the study of Lenz and Hahn (2015), where new institutional theory was adopted for use
in internal auditing research. Prior research on internal audit effectiveness has provided
rich data and a comprehensive body of knowledge. Linked to the objective of this study,
the
 MAJ purpose of the review of extant literature was not to argue the findings of prior research but
to use it to identify relevant drivers and measures of internal audit effectiveness.

Internal audit effectiveness

The IIA has published research reports and other guidance specifically addressing the
effectiveness of the IAF (including maturity levels and value-adding), with some focusing
specifically on the public sector (Piper, 2015; MacRae and Van Gils, 2014; IIARF, 2009).
Audit firms regularly publish reports on internal auditing, including the effectiveness of
the IAF (as an example, refer to the State of Internal Auditing reports annually issued by
PwC). With academic research on the topic increasing at a rapid rate, it was important to
understand what drivers and measures scholars have used to determine internal audit
effectiveness. Some of the most recent studies (within the past decade) are analysed and
summarised in Table I to form a basis for the survey instrument that was used in this
study. When analysing the sector in which these studies were conducted, the research
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methodology followed, the respondent groups that was included and the drivers of internal
audit effectiveness, it was evident that more research needs to be conducted on the drivers
and measures of internal audit effectiveness. Few of these studies identified exact or
similar
drivers and measures of internal audit effectiveness.
The studies in Table I are divided equally amongst the private and the public sectors,
mostly obtaining only the views of internal auditors (supply side); mainly being qualitative
in nature; and strongly focusing on the competencies of internal auditors, management
support and independence of the IAF. Most of these studies also address numerous sub-
elements within each of the elements listed in Table I. The elements listed in Table I were
identified as the most used and/or as explaining the sub-elements the best. With regard to
internal auditing within the private and the public sectors, Goodwin (2004) suggests that
although there are differences, in essence, internal audit activities are very similar. This is
supported by Cohen and Sayag’s (2010) results when they specifically measured whether the
specific sector influenced the internal audit effectiveness and their hypothesis was rejected.
Some studies developed scorecards or frameworks (Lenz et al., 2013; Badara and Saidin,
2013; Endaya and Hanefah, 2013; Onumah and Krah, 2012; Bota-Avram and Palfi, 2009)
that can be used to identify elements with regard to internal audit effectiveness.
Only four studies developed a regression model to measure internal audit effectiveness,
with D’Onza et al. (2015) and Arena and Azzone (2009) obtaining insight from the supply
side, thus limiting the studies to the potentially biased views of the CAE and/or other
internal auditors. Only two studies (Alzeban and Gwilliam, 2014; Cohen and Sayag, 2010)
could be found that used both internal auditors and other stakeholders’ perceptions in
building a regression model.
The analysis of the literature was used as the departing point for the development of the
constructs (the numbers in Table I will be used as cross reference). For the independent
variables, six constructs were identified, including the CAE profile (leadership); IAF
independence; the functioning of the IAF; IAF status; internal audit competence; and IAF
services and role. First, although only one document in Table I supports the link between
the leadership of the IAF and internal audit effectiveness (17), this comprehensive study
suggest that it is one of the key elements that support the success of internal auditing in the
public sector. A study conducted by Van Staden and Steyn (2009) concludes there is a
direct link between the profile of the CAE and internal audit quality, referring to his/her
qualifications, competence and the standing within the organisation, directly linked to the
administrative supporting line of the CAE. Second, IAF independence (combined with the
mandate of the IAF) that was addressed in 12of the listed articles received much
attention. Many studies
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View Size/ IA and

Private Public View of Structure EA/ Management
No. Article sector sector of IA others Qualitative Quantitative Regression Competence of IAF other support Independence

1 Al-Twaijry et al. (2003) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

2 Van Gansberghe (2005) ✓ ✓ ✓ ✓ ✓ ✓
3 Mihret and Yismaw ✓ ✓ ✓ ✓ ✓
(2007)
4 Yee et al. (2008) ✓ ✓ ✓ ✓ ✓ ✓
5 Arena and Azzone (2009) ✓ ✓ ✓ ✓ ✓
6 Bota-Avram and Palfi ✓ ✓
(2009)
7 Cohen and Sayag (2010) ✓ ✓ ✓ ✓ ✓ ✓ ✓
8 Soh and Martinov- ✓ ✓ ✓ ✓ ✓ ✓ ✓
Bennie
(2010)
9 Karagiorgos et al. (2011) ✓ ✓ ✓ ✓
10 Feizizadeh (2012) ✓ ✓
11 Onumah and Krah (2012) ✓ ✓ ✓ ✓ ✓ ✓ ✓
12 Abu-Azz (2012) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
13 Endaya and Hanefah ✓ ✓
(2013)
14 Lenz et al. (2013) ✓ ✓ ✓ ✓ ✓ ✓ ✓
15 Badara and Saidin (2013) ✓ ✓ ✓ ✓
16 Alzeban and Gwilliam ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
(2014)
17 MacRae and Van Gils ✓ ✓ ✓ ✓ ✓ ✓
(2014)
18 Lenz and Hahn (2015) ✓ ✓ ✓ ✓
19 D’Onza et al. (2015) ✓ ✓ ✓ ✓ ✓ ✓ ✓
TOTAL 9 9 12 8 7 5 4 16 6 8 14 10
(continued)

T
able I. Vi
Summary
of ew of
literature internal
on internal audit
audit effectiv
effectivenes
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Ta M
bl
e AJ
I.

Quality
Scope Organisational Service work/ Organisation
Professional of status/ and measure (support and Objective
No. Article proficiency work characteristics role performance Mandate Leadership satisfaction) staff Additional information

1 Al-Twaijry et al. (2003) ✓ ✓ Other – external auditors/only

descriptive statistics
2 Van Gansberghe (2005) ✓ ✓ Consultative forum discussions
3 Mihret and Yismaw ✓ ✓ Case study
(2007)
4 Yee et al. (2008) ✓ ✓ ✓ Other – management
5 Arena and Azzone (2009) ✓ ✓ Regression – only CAEs
6 Bota-Avram and Palfi ✓ ✓ ✓ Literature study
(2009)
7 Cohen and Sayag (2010) ✓ ✓ Other – general managers
8 Soh and Martinov-Bennie ✓ ✓ Other – CACs
(2010)
9 Karagiorgos et al. (2011) ✓ Other – CFOs/only descriptive statistics
10 Feizizadeh (2012) ✓ ✓ Literature study
11 Onumah and Krah (2012) ✓ ✓ Questionnaire to IA/interview CACs
12 Abu-Azz (2012) ✓ ✓ ✓ State–owned enterprises/other –
managers
13 Endaya and Hanefah ✓ ✓ ✓ Literature study building theories
(2013)
14 Lenz et al. (2013) ✓ ✓
15 Badara and Saidin (2013) ✓ Literature review
16 Alzeban and Gwilliam Other – managers
(2014)
17 MacRae and Van Gils ✓ ✓ ✓ ✓ ✓ CBOK data used
(2014)
18 Lenz and Hahn (2015) ✓ ✓ ✓ Literature study
19 D’Onza et al. (2015) ✓ ✓ ✓ ✓ Use of CBOK data
TOTAL 7 5 6 5 8 5 1 4 3
 (1, 2, 4, 7, 11, 12, 16, 17, 18 and 19) and other guidance documents (IOD, 2009) support
that the independence of the IAF is mainly determined by the functional reporting View
structures and the unlimited access to information and various parties, e.g. the audit of internal
committee (2, 6, 8, 11 audit
and 17) and scope of activities (1, 3, 9, 11 and 12). Third, the functioning of the IAF in effectiveness
relation to its size and structure (1, 2, 5, 8, 14 and 16), quality work and measurement of
performance (3, 4, 6, 7, 10, 12, 13 and 15) and professional proficiency (2, 4, 7, 10, 13, 17
and
19)appeared in 16 of the 19 listed articles. In addition, the literature suggests that the
budget allocation (Piper, 2015) and the charter (Harrington, 2004), being the formal
contract between management and the IAF, although only addressed by one document in
relation to an effective IAF (17 – management support), also influence the functioning of
the IAF, and were thus included. The diversity of skills hosted within the function to be
able to conduct their work with due diligence (5, 8 and 12) is also an important
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contributing factor for a functioning IAF. Fourth, the IAF status appeared in almost all of
the listed articles. The status of the IAF within the organisation (5, 8, 12, 17, 18 and 19)
can be determined by the use of the function to assist with various activities, e.g. to
provide advice to various parties (1, 6, 14 and 18) or to assist in reducing the external
audit fees (4, 8, 10, 12, 14, 15, 16 and 18), and the support for the function from both
management and the audit committee (1, 2, 3, 6, 7, 11, 12, 13, 14, 15, 16, 18 and 19).
When the CAE is invited to attend the EXCO meetings (CIIA-UK, 2014), it is seen as a
token of management taking internal auditing serious. Fifth, internal audit competence
appeared in 16 of the listed articles and staff turnover was added to this category (Tiamiyu
and Disner, 2009). Staff objectiveness was excluded because the measurement thereof was
deemed too subjective. Last, service and role of the IAF (services performed and
coordination with others) appeared in 14 of the listed articles. The services and the role of
the IAF are determined by the International Professional Practices Framework (IIA,
2017), suggesting that the key activities should be compliance, assurance and consulting
within the sphere of governance, internal control and risk management (4, 5, 14, 18 and
19). Risk-based auditing has grown tremendously over the past decade (14, 18) and the
coordination of internal auditing with inter alia other service providers (also referred to as
combined assurance), is an important aspect to perform their duties efficiently and
effectively (Coetzee and Lubbe, 2014).
For the dependent variables, few studies included internal audit effectiveness measures.
Hence, the six areas most commonly used in previous research and scientific popular
literature were identified, namely, the implementation of the IAF’s recommendation (6, 7,
11, 12, 14 and 16), that must be practical and cost-effective (6, 7 and 12). The reasons
why recommendations are implemented or not will also provide an understanding of
whether the IAF is effective or not. A second strong measure is the reliance placed by
external auditing on the work of the IAF (4, 12, 14, 15 and 18) – this indicates that
external auditing is not only trusting the soundness of the work performed but also
decreasing the external audit fees (4, 6 and 12). Other aspects that can be used to measure
internal audit effectiveness include the satisfaction by stakeholders (4, 7, 12 and 18), the
value-adding of the function for the organisation in various aspects (1, 7, 14 and 19) and
the perceived contribution on various strategic aspects (1 and 16).
Two distinctive limitations in previous research are that the variables used in the
regression models are not consistent and that limited studies included the views of the
IAF’s stakeholders. No study could be identified that compared the views of senior
management and the audit committee, using a quantitative methodology, to determine the
difference in the drivers of internal audit effectiveness in relation to identified measures –
leading to the conceptualisation.
 MAJ Internal audit stakeholders
According to Miles (2012) and Abdullah and Valentine (2009), stakeholder theory
implies that apart from the traditional shareholders of organisations, other parties are
involved: any group or individual who can affect or is affected by the achievement of
an institution’s objectives. Where the normative approach to stakeholder theory is
linked to corporate social responsibility and business ethics, the instrumental approach
uses empirical data to identify the connections that exist between the management of
stakeholder groups and the achievement of efficiency goals (Donaldson and Preston,
1995). The instrumental approach of stakeholder theory is applied in investigating
internal audit stakeholder relationship management to create a positive relationship
with all stakeholders through the appropriate management of their respective
expectations also expressed as stakeholder relationship management theory in relation
to the IAF (IIA-Australia, 2016). Many studies investigated stakeholder relationship
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management from an internal auditing perspective, for example, D’Onza and Sarens
(2017) investigated the quality of the relationship between internal auditors and
auditees and Abbott et al. (2017) investigated the effect of the relationship between the
IAF and the audit committee, focussing on internal controls.
Blattberg (2004) criticises stakeholder theory by arguing that the various stakeholders’
interest will always be compromised or balanced against each other. Güner (2008)
supports this potential conflict and suggests that the IAF should always be aware of who
its stakeholders are, what their expectations are, identify the performance gap, prioritise
their demands and develop responses to meet all stakeholders’ expectations, especially so
for senior management and the audit committee (Paape et al., 2003). Internal auditing will
always operate within the contradicting domains of, on the one hand, being a part of the
organisation and, on the other hand, trying to remain independent and objective to be able
to enhance its effectiveness (Hoos et al., 2013). The most important aspect that influences
this phenomenon of independence is the reporting lines of the IAF. According to the IIA
(2017), and reports (ECIIA 2005) and guidance (IOD 2009) issued by other major role
players, the CAE should report operationally or functionally to the audit committee and
administratively to the chief executive officer (or AO for the public sector), not only
enhancing the independence and status of the function but also supporting internal
auditing’s inclusion in the governance structure. In a South African public sector
dispensation, these lines of reporting are legislated (RSA 2005:3.1, 3.2; RSA 2003:Sec165;
RSA 1999:Sec38[a][ii]), making these two parties (AO and audit committee) the most
prominent stakeholders.
To support Blattberg’s (2004) argument, studies indicate that there could be much
conflict between the needs of the two stakeholders (Hoos et al., 2013; Van Peursem, 2004;
Paape et al., 2003). This conflict is mainly based on the movement of the IAF’s duties
from being purely based on assurance to also include consulting activities after the change
in the professional definition in 1999 (IIA 1999). Senior management expects the IAF to
provide them with advice on demand, leaning more to a consulting role, whereas the
executive authority’s expectations of the IAF (via the audit committee) are to provide
assurance and hold management accountable (Anderson, 2003). Studies indicate that
management’s needs are getting preference over those of the executive authority (Sarens
et al., 2009; Sarens and De Beelde, 2006; Van Peursem, 2004), also applicable to the
public sector (Roussy, 2013). It can thus be assumed that these contradicting needs of the
key stakeholders of internal auditing could have an effect on how they perceive internal
audit effectiveness. Thus, in support of instrumental stakeholder theory where stakeholder
expectations should be managed, the following research question is phrased:
 RQ1. What are the differences between the perceptions of senior management (AO)
and the audit committee as the oversight body (CAC) on what drives internal View
audit effectiveness in relation to identified measures? of internal
audit
Research method
effectiveness
Data
Data on the status of and demand for internal auditing in the South African public sector
were gathered by means of a survey conducted at national, provincial government
departments and local government municipalities from 2012 to 2014. The duration was
because of a phased approach and the questionnaires were completed by research team
members via personal or telephonic interviews with the institutions’ heads of IAF (CAEs),
CACs and senior management represented by AOs. This ensured that the data obtained
were rich and of high quality. The population and sample are summarised in Table II.
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South Africa spans an area of 1.22 million km2 over nine provinces. Sensitive national
government departments declined to participate in the study or could not be reached that
resulted in a sample size less than the population. Municipalities are divided into
metropolitan municipalities, district municipalities and local municipalities. District
municipalities oversee a number of local municipalities and, in many cases, share audit
committees. It was decided to follow a clustered sampling approach where all metropoles
were targeted and all district municipalities including a local municipality within each
district, explaining the sample size versus the population. National government
departments are centred in the capital of the country and provincial government
departments centred in the respective provincial capitals. Municipalities are based in their
municipal areas that cover the whole of South Africa. As a result, it was more feasible to
approach the national government departments and departments from neighbouring
provinces through personal contact that had a positive influence on the agreement to
participate in the study. Distant entities had to be approached for telephonic interviews
that had a negative effect on the participation and hence the lower responses from the
provincial government departments and municipalities. In addition, only responses from
institutions where responses were received from all category of participants within a
specific institution (CAE, AO, CAC) could be used for regression analysis, that reduced
the final views of the sample even further. For the purposes of this study, the number of
responses that could be subjected to this analysis together with the profile of the
respondents was deemed adequate. To mitigate response bias, the questions in the
questionnaires reflected on concepts that were familiar to the respondents. In addition, the
questionnaires were administered through personal contact with the respondents where the
researchers could clarify any confusion. An opt-out choice was also included for
responses to all technical questions.

National Provincial Local

government government government
departments departments municipalities Total
Stakeholders N/n (%) N/n (%) N/n (%) N/n (%)
Population 40 n/a 90 n/a 278 n/a 406 n/a
Sample 30 75 90 100 112 40 187 46
Final views Table II.
of sample 30 75 44 49 43 15 117 29 Data
collection
 MAJ The questionnaire data were subjected to an exploratory factor analysis (EFA) and
principal component analysis (PCA) to reduce the set of items and provide continuous
scores for use in the multivariate multiple regression analyses. From the questionnaire, 92
questions or items were used, of which 62 questions were measured on a five-point Likert
scale, 18 requesting order-type responses and 12 nominal responses. The total of 92
questions posed to the respondents is the most comprehensive list of variables compared
to the research listed in Table I. Based on the literature on internal audit effectiveness,
more questions could
have been added; however, the length of the questionnaire had to be considered in relation
to the employment level of the respondents.

Exploratory factor analysis and principle component analysis

For the dependent variables, very few studies included internal audit effectiveness
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measures. Six constructs most commonly used as measures (dependent variables) were
identified, namely: overall satisfaction with the functioning of the IAF; value-adding
activities; the evaluation of reasons for non-implementation; the contribution of the IAF to
specific factors; the extent of implementation of the IAF recommendations; and the
reliance placed by the external auditors on the work conducted by the IAF. For the
independent variables (predictors), six constructs were identified through a review of
previous research (Table I), namely: leadership (MacRae and Van Gils 2014); IAF
independence (12 articles); functioning of the IAF (15 articles); the IAF status within the
organisation (16 articles); internal audit competence (16 articles); and the role and services
of the IAF (14 articles). For each of these constructs, making 92 items in total, an EFA
was primarily conducted using principle axis factoring extraction and promax rotation to
determine the dimensionality of the items for each construct, resulting in 22 independent
variables and the six dependent variables[1]. Thereafter, a PCA was conducted to
determine if the 22 independent variables could be further reduced. The KMO test
rendered a score of 0.695. The Bartlett’s test of
sphericity was significant (p < 0.001). The results of the analysis identified six items and
four factors based on the eigenvalue criterion, with the four factors explaining 65.45 per
cent of the variance. The factor loadings for the four factors are indicated in Table III.
The internal consistency or reliability of the items relating to the identified factors was measured using
Cronbach’s alpha. If the value is above the threshold of 0.7, it is deemed

Factor Item Loading Cronbach’s Alpha

IAF influence sphere IAF influence sphere 0.870 0.836
Adherence to the standards 0.844
Access to information 0.896
Access to the CAC 0.568
IAF standing Audit committee support 0.604 0.735
Standing 0.619
Risk assurance activities 0.739
Support to the IAF 0.778
Audit committee structure 0.556
IAF size Adequate IAF size 0.313 0.520
Table III. Support to other parties 0.495
Rotated component Staff turnover 0.783
matrix for IAF services and roles performed Typical services 0.743 0.534
independent Additional services 0.796
variables Coordinate work with other parties 0.340
 satisfactory with the satisfactory threshold decreasing to 0.6 for exploratory analysis (Hair
et al., 2010), and to 0.5, which is deemed poor but still acceptable (George and Mallery, View
2003). of internal
The four factors and six items resulted in a set of ten independent variables, namely: audit
● IAF influence sphere; effectiveness
● IAF standing;
● IAF services and roles performed;
● IAF size;
● internal auditor competence;
● consulting on risks;
● IAF understand operations;
● IAF functional reporting structure;
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● competent leadership; and

● no scope limitation on IAF activities.

Model specification and variable measurement

Multivariate multiple regression models were developed to analyse the statistical significant
predictors of internal audit effectiveness as perceived by senior management and the audit
committee respectively. Regression analysis allowed the study to relate the measures of
internal audit effectiveness as perceived by the key stakeholders respectively with the drivers
of internal audit effectiveness as perceived by the head of the IAF. This enabled results that
could be used to answer the research question by determining what are the differences
between the perceptions of the two key stakeholders on what drives internal audit
effectiveness in relation to identified measures. The models, relating each measure with
identified drivers, were applied to both the perceptions of the CACs and the AOs. The
variables and their measurements included in the following models are presented in Table IV.

SATISF ¼ a þ b 1IAINFL þ b 2STAND þ b 3SERV þ b 4SIZE þ b 5IACOMP

þ b 6RISKCON þ b 7UNDERSOP þ b 8FUNCREP þ b 9CAECOMP
þ b 10SCOPELIM þ «

VALUEADD ¼ a þ b 1IAINFL þ b 2STAND þ b 3SERV þ b 4SIZE þ b 5IACOMP

þ b 6RISKCON þ b 7UNDERSOP þ b 8FUNCREP þ b 9CAECOMP
þ b 10SCOPELIM þ «

REIMPL ¼ a þ b 1IAINFL þ b 2STAND þ b 3SERV þ b 4SIZE þ b 5IACOMP

þ b 6RISKCON þ b 7UNDERSOP þ b 8FUNCREP þ b 9CAECOMP
þb 10SCOPELIM þ «
 MAJ
Variable Definition Measurement

Dependent
AO (1) CAC (2)
SATISF Satisfaction of Satisfaction with competence, commitment, effectiveness,
stakeholders with the flexibility, value-adds and conforms to charter. Variable assumed a
IAF value of 1 to 5, where 1 equals dissatisfied and 5 equals extremely
satisfied
VALUEADD IAF adds value to Value-added on governance, risk management, control
institution environment, operational effectiveness, service delivery to public,
forensic investigations, fruitless and wasteful expenditure, irregular
expenditure, unauthorised expenditure and combined assurance.
Variable assumed a value from 1 to 4, where 1 equals no value-add
and 4 equals extensive value-add
REIMPL Reasons why IAF’s Includes: Reliance is placed on the recommendations, practical
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recommendations are recommendations, competency of institution’s staff, vacancies and

implemented by IAF’s status. Variable assumed a value from 1 to 5, where 1 equals
management do not agree at all and 5 equals extremely agree
IAFCONTR Contribution to other Includes: Contributions to risk management, governance,
areas outside the IAF combined assurance, fraud prevention and fraud detection.
Variable assumed a value from 1 to 5, where 1 equals no
contribution and 5 equals good
IMPLREC The extent to which contribution Variable assumed a value of 1 to 5 where 1 equals
IAF’s never and 5 equals always
recommendations are
implemented
USEEXAUD The extent to which Variable assumed a value of 1 to 4, where 1 equals no reliance and 4
external audit places equals high reliance
reliance on work of
the IAF
Independent (CAE)
IAINFL The influence sphere of Includes: Advice to other sections, implementation of
the IAF within the recommendations, provide human resources to other sections,
institution influence management decisions, attend EXCO meetings, adhere to
the IIA standards, access to information, and access to CAC.
Variable assumed a value of 1 to 5, where 1 equals low influence
and 5 equals high influence
STAND The standing of the Includes: Audit committee structure, the audit committee discuss
IAF within the IAF findings, monitors IAF recommendation implementation, the
institution members are seen as objective and independent, management
support, status in the institution, status is sufficient to meet
objectives, assurance on risk governance, assurance on risk
management processes, involved in combined assurance, sufficient
budget allocation, conforms to the charter, quality assurance
programmes and diverse skills in the IAF. Variables assumed a
value of 1 to 5, where 1 equals low standing and 5 equals high
standing
SERV Services and roles Includes: 11 typical and additional internal audit services as well as
performed by the IAF coordination with other parties. Variable on typical and additional
internal audit services assumed a value of 1 to 4, where 1 equals
occasionally performed and 4 equals mainly performed. Variable
Table IV. on coordination with other parties assumed a value of 1 to 4, where
Description of the 1 equals do not coordinate and 4 equals extensive coordination
variables (continued )
 View of
Variable Definition Measurement internal audit
SIZE The IAF’s size
Includes: Staff turnover, adequacy of size on level internal auditors,
effectiveness
adequate to provide
support senior internal auditors, internal audit managers and CAEs and
support to other sections (training ground for management, aid to
management, and reduction of internal audit fees). Variable for
staff turnover assumed a value of 1 to 6, where 1 equals zero to ten
per cent turnover and 6 equals 100 per cent turnover. Variable for
adequacy of size assumed a value of 1 to 5, where 1 equals not
ideal and 5 equals ideal. Variable for support assumed a value of 1
IACOMP The competence of to 5, where 1 equals no support and 5 equals extensive support
internal auditors to Categories included academic qualifications, professional
perform their duties qualifications and internal audit experience. A weighting system
RISKCON IAF conducts risk was used
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consulting and risk- Includes strategic consulting, operational consulting, key risks
based audit addressed in the internal audit engagements and updating the risk
engagements register with audit findings. Variable assumed a value of 1 to 5,
UNDERSOP IAF effectively where 1 equals no contribution and 5 equals extensive contribution
understands the key Variable assumed a value of 1 to 5, where 1 equals no support of
operations of the the statement and 5 equals extreme support of the statement
institution
FUNCREP The functional
reporting structure Categories included CAC, Executive Authority, AO, CFO and
CAECOMP Competent other
leadership
of IAF Categories included academic qualifications, professional
qualifications, internal audit experience and IIA membership.
SCOPELIM No scope limitation A weighting system was used
is Variable assumed a value of 1 to 5, where 1 equals no scope
placed on the IAF limitation and 5 equals extensive scope limitation Table IV.
activities

IAFCONTR ¼ a þ b 1IAINFL þ b 2STAND þ b 3SERV þ b 4SIZE þ b 5IACOMP

þ b 6RISKCON þ b 7UNDERSOP þ b 8FUNCREP þ b 9CAECOMP
þ b 10SCOPELIM þ «

IMPLREC ¼ a þ b 1IAINFL þ b 2STAND þ b 3SERV þ b 4SIZE þ b 5IACOMP

þ b 6RISKCON þ b 7UNDERSOP þ b 8FUNCREP þ b 9CAECOMP
þb 10SCOPELIM þ «

USEEXAUD ¼ a þ b 1IAINFL þ b 2STAND þ b 3SERV þ b 4SIZE þ b 5IACOMP

þ b 6RISKCON þ b 7UNDERSOP þ b 8FUNCREP þ b 9CAECOMP
þ b 10SCOPELIM þ «

Table V presents descriptive statistics of the variables. Where ordinal data were collected
by means of a Likert scale, the mean does not represent a mathematical average but a
weighted value.
 MAJ Variable Mean SD Minimum Maximum
Dependent variables
AO_SATISF 3.8935 0.78698 1.50 5.00
AO_VALUEADD 2.6145 1.07489 0.00 4.00
AO_REIMPL 2.3533 1.79241 0.00 5.00
AO_IAFCONTR 3.7359 0.69406 1.20 5.00
AO_IMPLREC 3.769 1.4166 0.00 5.00
AO_USEEXAUD 2.393 2.0801 0.00 5.00
CAC_SATISF 3.7500 0.77982 1.67 5.00
CAC_VALUEADD 2.7171 0.83978 0.00 4.00
CAC_REIMPL 2.7821 1.59072 0.00 5.00
CAC_IAFCONTR 3.5170 0.84217 1.00 5.00
CAC_IMPLREC 3.444 1.2693 0.00 5.00
CAC_USEEXAUD 2.222 1.0676 0.00 4.00
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Independent variables
CAE_IAINFL 4.3616 1.08818 1.60 6.12
CAE_STAND 3.6696 0.63390 2.20 4.85
CAE_SERV 2.0177 0.84423 0.00 3.92
CAE_SIZE 2.9042 0.76766 1.33 4.67
CAE_IACOMP 7.504 2.4692 0.00 12.00
CAE_RISKCON 3.4629 0.85425 1.25 5.00
CAE_UNDERSOP 4.128 0.8564 2.00 5.00
CAE_FUNCREP 1.128 0.4831 1.00 3.00
Table V. CAE_CAECOMP 5.154 1.5064 1.00 8.00
Descriptive statistics CAE_SCOPELIM 2.027 1.0705 1.00 5.00

Both senior management and the audit committee were generally satisfied (AO_SATISF
mean = 3.8935; CAC_SATISF mean = 3.7500) with the competence and commitment of
their IAFs. Both stakeholders also reported that their IAFs make contributions
(AO_IAFCONTR mean = 3.7359; CAC_IAFCONTR = 3.5170) to risk management,
governance and other areas within their institutions. This may be the reason why both
these stakeholders are of the opinion that their IAFs recommendations (AO_IMPLREC
mean = 3.769; CAC_IMPLREC mean = 3.444) are mostly implemented. In all these cases,
the senior management perceptions were slightly more positive than that of the audit
committee. Although these stakeholders were positive towards the contribution that their
IAFs make to areas within the institution, they were less positive when asked to rate the
value that their IAFs add (AO_VALUEADD mean = 2.6145; CAC_VALUEADD mean =
2.7171) to these and other areas, which may be the reason why they also did not think that
external audit places much reliance on the work of their IAFs (AO_USEEXAUD mean =
2.393; CAC_USEEXAUD mean = 2.222). The CAEs were positive that their IAFs
understood the key operations of their institutions (CAE_UNDERSOP mean = 4.128),
which in turn may result in the IAFs having an elevated standing (CAE_STAND mean =
3.6696) and influence sphere (CAE_IAINFL mean = 4.3616). CAEs were, however, less
positive about the adequacy of the size of their IAFs (CAE_SIZE mean = 2.9042) as well
as the functional reporting lines of the IAFs (CAE_FUNCREP mean = 1.128).

Results
Spearman’s test of correlation was conducted as most of the data are ordinal. Table VI
represents the inter-correlations between all the variables.
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CAC_ CAC_ AO_

SCOPE UNDER IA CAE FUNC RISK VALUE RENON VALUE
IAINFL STAND SERV SIZE LIM SOP COMP COMP REP CON ADD IMPL ADD

IAINFL 1.00
STAND 0.115 1.00
SERV 0.308** 0.248** 1.00
SIZE 0.527** 0.255** 0.188* 1.00
SCOPE LIM —0.227* —0.357**—0.233* 0.008 1.00
UNDER SOP 0.272**—0.295** 0.015 0.148 —0.320** 1.00
IA COMP 0.100 —0.074 —0.040 —0.059 0.110 0.167 1.00
CAE COMP 0.218* —0.133 —0.002 0.106 0.007 —0.090 0.035 1.00
FUNC REP —0.072 —0.094 —0.147 —0.018 0.220* —0.158 0.174 0.027 1.00
RISK CON 0.546**— 0.250** 0.225* 0.212* —0.126 0.210* 0.141 0.035 0.039 1.00
CAC_
VALUEADD —0.004 0.110 0.170 0.138 —0.111 0.056 —0.077 0.059 —0.006 0.058 1.00
CAC_ REIMPL 0.201* —0.038 —0.122 0.235* 0.181 —0.010 0.154 0.049 0.136 0.023 0.191* 1.00
AO_ VALUEADD 0.101 0.024 0.148 0.058 —0.190* —0.037 —0.096 0.062 —0.010 0.097 0.226* 0.046 1000
AO_ REIMPL 0.254** 0.092 0.111 0.194* —0.197* 0.049 0.208* 0.006 0.022 0.206* 0.045 0.131 0.271**
CAC_ SATISF —0.123 0.137 0.060 0.024 —0.144 0.081 —0.084 —0.030 —0.026 —0.093 0.710** 0.013 0.128
AO_ SATISF —0.132 0.038 0.066 —0.139 —0.201* 0.152 —0.246** —0.029 —0.093 —0.067 0.160 0.054 0.441**
CAC_ IAFCONTR —0.201* 0.286** 0.098 0.045 —0.141 0.052 —0.151 —0.041 0.037 —0.153 0.579** 0.084 —0.058
AO_ IAFCONTR —0.040 0.012 —0.024 —0.081 —0.145 0.055 —0.092 0.138 —0.003 —0.066 0.144 0.176 0.430**
AO_IMPLREC 0.095 0.062 0.127 —0.093 —0.166 0.051 —0.065 0.017 —0.047 0.112 0.149 —0.035 0.384**
AO_USEEXAUD 0.139 0.136 0.109 0.232* —0.178 0.122 0.017 —0.005 0.009 0.100 0.129 0.119 0.393**
CAC_USEEXAUD —0.028 0.247** 0.272** 0.090 —0.141 0.158 —0.217* 0.206* —0.070 —0.070 0.332** —0.014 0.071
CAC_IMPLREC 0.079 0.000 0.109 0.075 —0.060 —0.022 —0.014 0.109 —0.041 0.144 0.305** —0.166 0.228*
(continued)

T
able VI. Vi
Spearman’s
correlation ew of
matrix of internal
variables audit
effectiv
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Ta M
bl
e AJ
VI

AO_ CAC_ AO_ CAC_ AO_ AO_ AO_ CAC_ CAC_

RENON IMPL SATISF SATISF IAF CONTR IAF IMPLREC USEEXAUD USEEXAUD IMPLREC
CONTR
IAINFL
STAND
SERV
SIZE
SCOPE LIM
UNDER SOP
IA COMP
CAE COMP
FUNC REP
RISK CON
CAC_ VALUEADD
CAC_ REIMPL
AO_ VALUEADD
AO_ REIMPL 1.00
AO_ SATISF CAC_ SATISF —0.030
0.08744 1.00
0.202* 1.00
CAC_ IAFCONTR —0.078 0.653** 0.159 1.00
AO_ IAFCONTR 0.086 0.129 0.607** 0.167 1.00
AO_IMPLREC 0.011 0.120 0.151 0.128 0.133 1.00
AO_USEEXAUD 0.211* 0.066 0.314** 0.101 0.224* 0.259** 1.00
CAC_USEEXAUD —0.029 0.246** 0.078 0.407** 0.166 0.151 0.156 1.00
CAC_IMPLREC 0.198* 0.335** 0.152 0.265** 0.150 0.174 0.109 0.262** 1.00
Notes: **Correlation is significant at the 0.01 level (two-tailed); *correlation is significant at the 0.05 level (two-tailed); N = 117
 The correlation between the various independent variables was weak to moderate
(significant correlations mostly between 0.2 and 0.4), which excluded the possibility of View
multicollinearity. For the correlation between the dependent and the independent of internal
variables, a statistically significant relationship was indicated for the AO in terms of audit
reasons why IAF recommendations are being implemented (AO_REIMPL). For the CAC, effectiveness
a statistically significant relationship was indicated for the extent to which external audit
places reliance on the work of the IAF (CAC_USEEXAUD). However, the drivers of
internal audit effectiveness for these two stakeholders were different, which will be
discussed in the regression analyses.
In Table VII, the results of the regression analyses are presented. The results are
discussed for senior management (represented by the AO) and the audit committee
(represented by the CAC) for each of the ten independent variables.
The R2 ranged between 5.1 and 25.6 per cent, which is weak. However, some of the
measures (dependent variables) indicated statistically significant relationships with the
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drivers (independent variables), namely, the satisfaction of the AO with the IAF
(SATISF); for both the AO and CAC, the reasons why internal audit ’s recommendations
are implemented (REIMPL); and the CAC’s view of the extent to which external audit
place reliance on the work of the IAF (USEEXAUD).
The three drivers for internal audit effectiveness that are important for the AO are the
size of the IAF (SIZE), internal audit competence (IACOMP) and the fact that there are no
scope limitations (SCOPELIM) placed on the activities of the IAF. For SIZE, a
statistically significant prediction was established (in relation to the other drivers in the
model) with the measure of the use of the work of the IAF by external auditing (p =
0.055). For IACOMP, a statistically significant prediction was established with the
measures of the satisfaction of management (p = 0.009) and the value that the IAF adds (p
= 0.096). For SCOPELIM, a statistically significant prediction was established with the
measures of the satisfaction of management (p = 0.070), the value that the IAF adds (p =
0.052), the reasons why the IAF’s recommendations are implemented (p = 0.038), the
contributions of the IAF to other parties (p = 0.083) and the use of the work of the IAF by
external auditing (p = 0.064).
Similarly, five drivers of internal audit effectiveness as perceived by the CAC were
identified, namely, the influence sphere of the IAF within the institution (IAINFL), the
standing of the IAF within the institution (STAND), the services and role of the IAF
(SERV), the IAF’s effective understanding of the key operations of the institutions
(UNDERSOP) and competent leadership of the IAF (CAECOMP). For the IAINFL, a
statistically significant prediction was established with the measure of the reasons why the
IAF’s recommendations are implemented by management (p = 0.064). For the STAND,
a statistically significant prediction was established with the measures of the contribution
of the IAF to other parties (p = 0.76) and the use of the work of the IAF by external
auditing (p = 0.047). For the SERV, a statistically significant prediction was established
with the measures of the value that the IAF adds (p = 0.015) and the use of the work of
the IAF by external audit (p = 0.002). For the drivers UNDERSOP and CAECOMP, a
statistically significant prediction was established with the measure of the use of the work
of the IAF by external auditing (p = 0.064; p = 0.001). It is interesting to note that the
extent to which the external auditors place reliance on the work of the IAF (USEEXAUD)
is influenced by four drivers (in relation to other drivers in the model) as per the
perceptions of the CAC, namely, the standing of the IAF within the institution (STAND);
the services and role of the IAF (SERV); the IAF’s effective understanding of the key
operations of the institution (UNDERSOP); and competent leadership of the IAF
(CAECOMP). A further interesting result is that no drivers support the CAC’s satisfaction
(CAC_SATISF), with the IAF effectiveness and the internal audit
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Table M
VII.
Results AJ
of
regressio
n
analysis

SATISF VALUEADD REIMPL IAFCONTR IMPLREC USEEXAUD

Dependent variables AO CAC AO CAC AO CAC AO CAC AO CAC AO CAC
Independent variables R2 0.159 0.051 0.110 0.095 0.16 0.166 0.115 0.145 0.094 0.064 0.094 0.256
Sig. 0.040** 0.838 0.236 0.359 0.039** 0.03** 0.565 0.192 0.373 0.699 0.373 0.000***
F 1.999 0.566 1.306 1.113 2.015 2.111 0.870 1.406 1.094 0.725 1.095 3.644
IAINFL b —0.064 —0.196 0.098 —0.158 0.177 0.257 —0.042 —0.212 0.158 —0.118 —0.022 —0.126
Sig. 0.641 0.182 0.491 0.271 0.202 0.064* 0.801 0.175 0.272 0.418 0.879 0.333
STAND b —0.080 0.015 —0.051 —0.009 0.031 —0.013 0.021 0.228 0.034 —0.127 —0.015 0.204
Sig. 0.460 0.899 0.646 0.937 0.774 0.900 0.886 0.076* 0.762 0.268 0.890 0.047**
SERV b 0.073 0.038 —0.016 0.251 —0.062 —0.157 —0.003 0.100 —0.002 0.147 —0.012 0.290
Sig. 0.457 0.715 0.874 0.015** 0.529 0.110 0.980 0.373 0.984 0.157 0.903 0.002***
SIZE b —0.085 0.116 0.013 0.169 0.146 0.085 —0.130 0.055 —0.139 0.175 0.243 0.012
Sig. 0.482 0.365 0.916 0.179 0.227 0.480 —0.412 0.694 0.268 0.173 0.055* 0.915
IACOMP b —0.257 —0.008 —0.167 0.055 0.151 0.153 —0.050 —0.073 —0.086 —0.003 0.030 0.130
Sig. 0.009*** —0.937 0.096* 0.588 0.122 0.114 0.681 0.513 0.391 0.979 0.763 0.156
RISKCON b —0.066 —0.015 0.170 0.080 0.047 —0.066 —0.167 —0.129 0.099 0.148 0.058 0.144
Sig. 0.541 —0.897 0.127 0.476 0.660 0.541 0.244 0.305 0.377 0.195 0.602 0.157
UNDERSOP b 0.072 0.075 —0.125 0.002 —0.094 0.014 0.055 —0.031 0.023 —0.042 0.002 0.182
Sig. 0.491 0.497 0.242 0.986 —0.367 0.893 0.652 0.803 0.831 0.699 0.984 0.064*
FUNCREP b —0.045 —0.010 —0.044 0.004 0.040 0.067 0.074 0.086 —0.038 0.010 0.033 0.001
Sig. 0.634 —0.918 0.652 0.966 0.676 0.479 0.549 0.447 0.701 0.923 0.740 0.989
CAECOMP b —0.010 0.012 —0.049 0.071 —0.056 0.007 0.101 0.067 —0.062 0.071 —0.036 0.309
Sig. 0.916 0.907 0.615 0.471 0.556 0.942 0.411 0.537 0.529 0.475 0.711 0.001***
SCOPELIM b —0.190 —0.125 —0.210 —0.051 —0.218 0.154 —0.241 —0.065 —0.150 0.003 —0.201 0.02
Sig. 0.070* 0.258 0.052* 0.638 0.038** 0.140 0.083* 0.575 0.168 0.978 0.064* 0.8290.829

Notes: *p # 0.1; **p # 0.05; ***p # 0.01

 effectiveness drivers that do not support the implementation of internal audit
recommendations for both the AO (AO_IMPLREC) and the CAC (CAC_IMPLEC). View
In answering the research question (RQ1) of the study, the perceptions of the key of internal
stakeholders on the drivers of internal audit effectiveness were compared. The results are audit
presented in Table VIII. effectiveness
No similarities with regard to the drivers, that indicated a statistical significant
relationship with the six specific measures of internal audit effectiveness, can be observed
for the two stakeholders. Furthermore, no statistical similarities can be observed overall.

Conclusion
Although the extant body of knowledge supports that differences exist between senior
management’s and the audit committee’s view on internal audit effectiveness, this
study contributes by dissecting these differences. In comparing their views on the
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drivers in relation to the measures of internal audit effectiveness, no statistical

similarities could be found. The use of internal auditing by the external auditors
received the most statistically significant predictors for the audit committee, although
the drivers differed. This result underscores the emphasis that the audit committee
places on the role of internal auditing as part of combined assurance. Satisfaction with
the IAF, the value that the IAF adds and its use by external auditors were the main

Effectiveness measure Senior management Audit committee

Satisfaction with
functioning of the IAF The competence of the internal No significant measures
(SATISF) auditors to perform their duties based
on their academic and professional
qualifications (IACOMP)
No scope limitation is placed on the
IAF adds value to the IAF activities (SCOPELIM)
institution (VALUEADD) The competence of the internal Services and roles performed by the
auditors to perform their duties based IAF (SERV)
on their academic and professional
qualifications (IACOMP)
No scope limitation is placed on the
Reasons why IAF IAF activities (SCOPELIM)
recommendations are No scope limitation is placed on the The influence sphere of the IAF
implemented by IAF activities (SCOPELIM) within the institution (IAINFL)
management (REIMPL)
IAF contribution to other
e.g. risk management and No scope limitation is placed on The standing of the IAF within the
combined assurance the IAF activities (SCOPELIM) institution (STAND)
(IAFCONTR)
The extent to which
external audit places The IAF size adequate to provide The standing of the IAF within the Table VIII.
reliance on the work of support (SIZE) institution (STAND) The difference
the IAF (USEEXAUD) No scope limitation is placed on Services and roles performed by
between perceptions
the IAF activities (SCOPELIM) the IAF (SERV)
The IAF effectively understands of senior
the key operations of the institution management and the
(UNDERSOP) audit committee on
Competent leadership of the IAF what drives internal
(CAECOMP) audit effectiveness
 MAJ drivers for senior management that relates well with the consulting role expected of
internal auditing by this stakeholder. The extent to which the IAF’s recommendations
are implemented was not seen by either party as an important measure of internal audit
effectiveness. The drivers that were not highly regarded as predictors for internal audit
effectiveness by either party include the IAF conducting risk consulting and risk-based
internal audit engagements, as well as the functional reporting lines of the CAE.
Especially noteworthy and of concern is the fact that internal auditing conducts risk
consulting and performs their internal audit engagements based on the high-risk areas
of the institution having a lesser effect on the views of both senior management and the
audit committee regarding internal audit effectiveness. The role that internal auditing
plays within risk management has received much attention from the profession,
researchers and management during the past decade, and it would thus have been
expected to receive more prominence.
The fact that no limitation of scope is placed on the work conducted by the IAF is for
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senior management the most critical driver of internal audit effectiveness, followed by
the competency level of the internal auditors. If no scope limitation is placed on the
work performed by the IAF, internal auditing can investigate any aspect of the
institution, scrutinising any process, system, document, etc. improving the possibility
that fraudulent activities and ineffectiveness or inefficiency will be detected. The fact
that this is less important for the oversight body contradicts the literature, where
freedom to conduct any internal audit activities is regarded as necessary and would
most probably also address the assurance needs of the oversight body. The
contradiction may lie in the focus of the study on the public sector where adherence to
the IIA standards that include “no scope limitation” is legislated. Also where the most
important driver for the audit committee is the use of internal auditing by external
auditing, it is implied through the requirement of the international standards on
auditing (IFAC, 2013), that no scope limitation is placed on the work of the IAF. This
driver priority for the audit committee may be attributed to the fact that audit
committees in the South African public sector are heavily occupied by private sector
chartered accountants.
The competency levels of the internal auditors give senior management the confidence that
the internal auditors can conduct their activities in a professional and proficient manner. For
the audit committee, the standing of the IAF within the institution and the role and services
that the IAF provides are the most prominent drivers of internal audit effectiveness. The
standing provides the audit committee with the knowledge that internal auditing will be taken
seriously in the institution; whereas the types and variety of roles played and services
conducted by the IAF provide the oversight body with confidence that internal auditing is
covering a wide spectrum of activities within the institution.
This study contributes on various levels to the current body of knowledge on
internal audit effectiveness. First, although literature investigating internal audit
effectiveness is increasing, limited studies have been conducted to include the views of
the users of internal auditing (the demand-side perspective). Furthermore, the
stakeholder theory supported by literature suggests that the demand on internal
auditing from the two main stakeholders, namely, senior management and the
oversight body, can be contradictory. Where senior management wants assistance and
guidance from internal auditing, the oversight body wants assurance. As these parties
are both very important stakeholders of the IAF, it is important that both their needs
are addressed and their views or perceptions acknowledged. The objective of this study
was to determine the differences in perception of the two main IAF stakeholders on
 what drives internal audit effectiveness. The results of the study support Blattberg’s (2004)
criticism of stakeholder theory and Güner’s (2008) opinion on the potential conflict View
between the expectations of IAF stakeholders. of internal
For the practitioners, this is something that both the IAF management and the IIA audit
should take note of and manage accordingly. The CAE must take note that these two effectiveness
stakeholders have different perceptions on evaluating the successes of the IAF. The IIA, as
the professional body and being in the position to provide guidance to its members and
which advocates the widening expectation gap between internal auditing and their
stakeholders, is in an ideal position to inform CAEs of these differences in perception. It is
also the responsibility of the CAE and the IIA to inform senior management and the
oversight body of their different expectations of the IAF. In line with the instrumental
approach to stakeholder theory, focusing on managing expectations of key IAF
stakeholders may lead to a more effective IAF that would enhance public sector
accountability.
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There is much scope for further research following on the results of this study. Step-
wise regression should indicate the independent variables that could be eliminated, leading
to only including drivers with a strong relation to a specific measure and thus a working
model to predict internal audit effectiveness in relation to that measure. Also, in-depth
findings from a qualitative research approach my shed light on the reasons for driver
prominence from the respective key stakeholders. This will provide rich evidence on the
expectation gaps between the key stakeholders of internal auditing to move closer to a
solution on how to address the gaps. Furthermore, this study only focuses on the public
sector in South Africa. Emulating this comprehensive study to include private sector
organisation’s perceptions and even different countries (e.g. developed versus developing)
could be explored in future research.

Note
1. The process followed to execute the factor analysis is documented in a separate article: “What
drives and measures public sector internal audit effectiveness? Dependent and independent
variables”, accepted for publication in International Journal of Auditing 2017, Vol. 21 No. 3,
pp. 237-248.

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Corresponding author
Philna Coetzee can be contacted at: coetzgp@unisa.ac.za

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