Demeke &kaur Determinants - of - Internal - Audit - Effectiveness - Evidence - From - Ethiopia

African Journal of Business and Economic Research (AJBER)
(Online) ISSN 1750-4562 (Print) ISSN 1750-4554

Demeke & Kaur (AJBER) Volume 16, Issue 2 June 2021, Pp 51- 72
Indexed by SCOPUS, UGC CARE List, IBSS, EBSCO, ProQuest,
ABDC, SAJE, COPERNICUS, CABELL, Sabinet and J-Gate
Volume 16, (Issue 2), June 2021
pp 51 –72
Determinants of Internal Audit Effectiveness:

Evidence from Ethiopia
DOI: https://doi.org/10.31920/1750-4562/2021/v16n2a3
Tadesse Demeke (Ph.D.)

College of Business and Economics,
Dire Dawa University, P.O. Box: 1362, Ethiopia,
Email: tadessedemeke22@gmail.com
&
Jasmindeep kaur (Professor)

Faculty of Business Studies,
Punjabi University, P.O. Box: 147002, India,
Email id: bhnoor@yahoo.co.in
Abstract
The existence of multi-dimensional measures of internal audit effectiveness

made the findings of most prior studies inconsistent. The central attention
of this study is to identify the determinants of internal audit effectiveness in
Ethiopian public higher education institutions, add knowledge to the
existing literature, and give direction to practitioners and academicians. To
achieve this objective, both qualitative and quantitative research designs
were used. Data were collected from internal auditors through a structured
questionnaire and interview. The confirmatory factor analysis, structural
equation model, and multiple regression model were employed. As the
findings of the study denoted, adequate and competent internal auditors,
internal audit charter and quality of internal audit work are crucial
determinants of internal audit effectiveness. It can be concluded from the
study that establishing internal audit charter and improving the adequacy
and competency of internal auditors will ensure the independence and
objectivity of internal auditors.
Keywords: Determinants, Ethiopia, Higher education, Internal audit effectiveness,

Public institution.
51
Determinants of Internal Audit Effectiveness:…
1. Introduction
Internal auditing and good governance are two sides of a coin.

Internal audit function is a key component of a good corporate
governance structure (Pickett, 2010). It is an independent, objective
assurance and consulting activity designed to add value and improve
an organization's operations. It is also a catalyst to improve an
organization's governance, risk management and management
controls by providing insight and recommendations based on analyses
of data (Pickett, 2010; Al-Khaddash et al., 2013). The recent corporate
failure (Pickett, 2010), the wastage of public resources and the rapid
growth of professional institutions are the main causes for the current
demand for internal auditing in different institutions (Cohen & Sayag,
2010). Internal auditing helps organizations to accomplish their
objectives and make good corporate governance by instituting a
systematic and disciplined approach. An internal auditor is the only
employee within an organization who has a deep understanding of the
risk and its control mechanism (Pickett, 2010; IIA, 2012).
Recently, internal auditing practice is gaining due recognition as
one of the major determinants of effective and efficient utilization of
resources in organizations all over the world. For instance, the report
of the Office of the Federal Auditor-General (Gemechu, 2017),
revealed that relative high corruption was observed in Ethiopian
public higher education institutions than in any other public
institution. The report quotes the payment of 98 million Ethiopian
Birr made without any sufficient evidence in 2017 as an example, out
of which a majority were by these institutions. Moreover, internal
audits have an advantage over external audits for obtaining
information quickly and identifying problems at an early stage (IIA,
2012). Hence, the main objective of this study is to identify the
determinants of internal audit effectiveness in public higher education
institutions of Ethiopia, add to the existing literature, and give
directions to practitioners and academicians.
It is important here to point out that several studies on internal audits
have been conducted on the basis of neoclassical economic theories
such as agency theory (Adams, 1994) and transaction cost theory
(Spraakman, 1997). Neoclassical economic theories put some limits
on application i.e. they assume a developed market economic setting
and large volume of transactions, the concept of market equilibrium,
52
and organizational phenomenon. Owing to these, the theories fail to

sufficiently describe the internal audit development and operation in
developing countries like Ethiopia. Institutional theory, on the other
hand, explains how institutional practices and structures are shaped
through changes brought by both internal and external pressures such
as regulations and laws, the practices of other institutions, and
recognition of professions. The theory is also recommended for
internal audit study as it does not limit applicability just to profit-
oriented institutions and developed market economies (Mihret, 2010).
This study was therefore conducted on the basis of the institutional
theory.
The study of the determinants of internal audit effectiveness
found top management support as a significant and positive
determinant from the three dimensions—auditing quality, auditees‘
evaluation and added contribution of internal audit—while
organizational independence has been found to be significant only for
auditees‘ evaluation. Moreover, variables such as professional
proficiency, audit work quality, career and advancement, including
organizational independence are the results of top management
decisions (Cohen and Sayag, 2010). Replies to this critique with
evidence that internal audit effectiveness had a significant and positive
relationship with the independence/objectivity of internal
auditors‘(Baharud-din et al., 2014), independence (Alzeban &
Gwilliam, 2014; Drogalas et al., 2015; Dellai & Omri, 2016; Mekelle,
2017), management support (Alzeban & Gwilliam, 2014; Baharud-din
et al., 2014; Hailemariam, 2014; Drogalas et al., 2015; Dellai & Omri,
2016; Mekelle, 2017), objectivity of internal auditors‘ (Al Matarneh,
2011; Dellai & Omri, 2016) which is different from the findings of
Hailemariam (2014) that organizational independence is insignificant.
Empirical work by Al Matarneh (2011), Alzeban and Gwilliam (2014),
Baharud-din et al. (2014), Hailemariam (2014), Drogalas et al. (2015),
and Mekelle (2017) made findings that contradict those of Cohen and
Sayag (2010) and Dellai and Omri (2016) that adequacy and
competency of internal auditors‘ has a significant effect on internal
audit effectiveness. Moreover, contrary to Cohen and Sayag (2010),
the quality of internal audit (Drogalas et al., 2015; Mekelle, 2017), and
career and advancement (Dellai & Omri, 2016; Mekelle, 2017) were
found to be significant. Last but not least, a study conducted by
Hailemariam (2014) on the determinants of internal audit
53
effectiveness found that availability of approved internal audit charter

is a significant determinant, while perception of management is not.
The review of literature generally shows that, unlike this study,
very few prior studies used the three dimensions—ditees‘ evaluation,
added contribution of internal audit, and auditing quality—as proxy
measures of internal audit effectiveness. Secondly, most prior studies
used just the multiple regression model to identify these determinants,
while this study used confirmatory factor analysis and the structural
equation model in addition to the multiple regression model as these
two tools are recommended if the variables of the study are latent.
2. Materials and Methods
2.1 Description of the Study Area
The study was conducted on Ethiopian public higher education

institutions. Higher education training in Ethiopia dates some fifty
years back, though it is immature yet. Haile Selassie University, which
was established in 1961 and later renamed Addis Ababa University in
1974, is the first higher public education institution in the country.
There were four public universities, including the University of
Asmara, till Eritrea gained its independence from Ethiopia in 1991.
The number of public universities began increasing after 1991. The
figure increased to eight in 2001 and to 22 in 2011. The number of
universities reached 45 in 2018 (the year in which the data for this
study was collected) (Trines, 2018).
2.2 Research Framework
A mixed research design of both descriptive and explanatory methods

was employed. Qualitative analysis was additionally used for the
triangulation of the quantitative data and to express data obtained
through interviews. According to the Ethiopian Ministry of Science
and Higher Education, public higher education institutions are
classified into three strata based on the year in which they were
established, i.e. first-generation universities, second-generation
universities, and third-generation universities (Zerihun, Personal
Communication, September 25, 2017). In the study, the sample
institutions were selected following this stratum. With regards to the
54
sampling techniques employed towards achieving the objective of the

study, proportional stratified random sampling, purposive sampling
and census were used to select the sample institutions, the relevant
department and the appropriate respondents, respectively. Following
this, 160 questionnaires were distributed to the internal auditors of the
sampled institutions, out of which 121 questionnaires were covered
after editing. The internal auditors were picked from 18 sample
universities, out of the 30 target universities. The questionnaires were
prepared on the basis of a five-point Likert-type scale, with the
response options ―strongly agree‖, ―agree‖, ―neutral‖, ―disagree‖, and
―strongly disagree‖. In addition to the questionnaires, an interview
was conducted with the three selected internal audit department
directors. Data were collected from April 2018 to December 2018.
The confirmatory factor analysis was applied to identify a set of items
that are strongly related to unobservable variables using AMOS. The
hypothesized confirmatory factor analysis models are presented in
Fig. 1 and Fig. 2.
55
Fig. 1. Hypothesized Confirmatory Factor Analysis Model for Nine

Independent Variables
Where ―top management support, organizational independence,

adequate and competent internal auditors, internal audit charter,
quality of internal audit work, career and advancement, management
perception of internal audit function value, information technology,
and objectivity of internal auditors‖ refer to latent variables, ―e‖ is a
unique factor, and the remaining are items under each latent variable.
Fig. 2. Hypothesized Confirmatory Factor Analysis Model for Three

Dependent Variables
Where ―auditees‘ evaluation , added contribution of internal audit and

auditing quality‖ refer to latent variables, ―e‖ is a unique factor, and
the remaining are items under each latent variable.
Based on the literature, the following nine hypotheses were
formulated. Within these general hypotheses, based on the three
internal audit effectiveness dimensions, (auditees‘ evaluation, added
contribution of internal audit and auditing quality), three subs-
hypotheses will be tested.
Hypothesis 1: Top management support has a positive and

significant effect on internal audit effectiveness.
Hypothesis 2: Organizational independence has a positive and
Hypothesis 3: Adequate and competent internal auditors have a

positive and significant effect on internal audit effectiveness.
56
Hypothesis 4: Internal audit charter has a positive and significant

effect on internal audit effectiveness.
Hypothesis 5: Quality of internal audit work has a positive and

Hypothesis 6: Career and advancement have a positive and

Hypothesis 7: Management perception of internal audit function
value has a positive and significant effect on internal audit
effectiveness.
Hypothesis 8: Information technology has a positive and significant

effect on internal audit effectiveness.
Hypothesis 9: Objectivity of internal auditors has a positive and

2.3 Operational definition of variables
The operational definition of the nine independent variables and the

three dependent variables is presented in Table 1.
Table 1: Definitions of measures of variables

Variable Construct Definition of measure
type
The support of the management regarding the
training and development of internal auditors;
Top management support the response of the management for audit
findings and audit recommendations; and the
cooperation of the management with internal
auditors.
The freedom of internal auditors to include
any audit findings in the audit reports; the
Organizational relationships of internal audit department with
independence the management team of the university; the
freedom of the internal auditors regarding the
accessibility of information; and the content of
the annual work plan of the internal audit with
Independent variables
respect to financial budgets and staffing

information.
Adequate and competent The size, recruitment policy, training and
internal auditors development programmes, educational level
and experience of internal auditors.
A formal written document that contains the
Internal audit charter scope, purpose, authority, and responsibility
57
of internal auditors.
The determiner of the annual audit plan; the
Quality of internal audit audit coverage; the follow-up procedure; the
work applicability of laws, regulations, policies and
procedures; the discussion of internal auditors
and auditees about the audit findings before
the final audit reports are issued; and the
reliability of the audit working paper.
Career and advancement Hiring and assigning employees for temporary
as an internal auditor to transfer them to a
better position (using internal auditor as a
training position).
Management perception Managers‘ awareness of the internal auditors‘
of internal audit function roles.
value
Usage of software by the internal audit
Information technology department, and internal auditors‘ knowledge
and skill with computerized information
systems.
Objectivity of internal Unbiased mental attitude of internal auditors.
auditors That is, not participating in an audit of
activities for the operation of which they were
responsible previously until a reasonable time
has elapsed, rotating their assignments, and
they must be free from social pressure,
economic advantage, and political influence,
when performing the audit.
Internal audit Measured by three dimensions: Auditees‘
effectiveness evaluation (management evaluation ad
satisfaction with internal audit reports), added
benefits of internal audit (the benefits and
Dependent variables
savings of internal audits to the institution

compared to its costs), and auditing quality
(the constructiveness of the internal audit
findings and recommendations, the
applicability of the internal audit
recommendations, and ways of identifying
risks).
2.4 Reliability and validity
Four main tasks were carried out to ensure the reliability and validity
of the study: First, the instruments of the study were checked by three
professionals from disciplines related to the study area. Second, most
of the variables, which are adapted from prior literatures (Cohen &
Sayag, 2010; Deribe & Regasa, 2014; Ebissa, 2015; Dellai & Omri,
2016) and the Institute of Internal Auditors-Global, were measured by
more than two items. Third, a pilot study was made using test-retest
58
method with the nine internal auditors of the sample institutions.

Finally, Cronbach‘s alpha was applied to measure the internal
consistency of the items. Then, minor modifications were made for
the sake of clarity and precision of the questions. The reliability of the
survey questionnaires for various items varied from 0.797 to 0.865,
and found to be acceptable (Mihret, 2010; Ali Alflahat, 2017).
2.5 Research model
Though most prior studies used a multiple regression model to

identify the determinants of internal audit effectiveness, this study
employed the structural equation model and the multiple regression
model for the triangulation of the results. The following equation
shows the multiple regression model of the study:
Yi = β0 + β1X1i + β2X2i +...+ βk Xk i + U i

Where: Yi= dependent variables, β0 = constant terms, X 1, 2... =
independent variables, β 1, 2.. = regression coefficient of the
independent variables, and U i = the error term.
2.6 Conceptual framework of the study
The conceptual framework of the study shows the graphic

presentation of the independent variables‘ proposed effect on the
dependent variables. The nine independent variables as supported by
many works of literature are used to examine the determinants of
internal audit effectiveness (measured by three dimensions) (see
Fig.3).
59
Fig. 3: Conceptual Framework for the Predicted Determinants of Internal

Audit Effectiveness (Author’s compilation, 2018).
2.7 Ethical concerns
The instruments were made to be fully anonymous to conceal the

identity of the respondents who provided the information and to
maintain confidentiality in the entire study. Moreover, all materials are
properly acknowledged.
3. Results and Discussion
3.1 Results of confirmatory factor analysis
The survey data of internal auditors was analysed using the

confirmatory factor analysis tool after the threshold model fit indices
(relative/normed chi-square, standardized root mean square residual,
root mean square error of approximation, goodness-of-fit statistic,
tucker-lewis index and comparative fit index) were fulfilled to identify
the set of items that are strongly related to the factors or variables.
Thus, based on the results, seven independent variables from the nine
hypothesized independent variables and two dependent variables
from the three hypothesized dependent variables were extracted. The
seven extracted independent variables are top management support,
organizational independence, adequate and competent internal
60
auditors, internal audit charter, quality of internal audit work,

information technology and objectivity of internal auditors. The two
extracted dependent variables, on the other hand, are auditees‘
evaluation and auditing quality. Only the supported seven
independent variables and two dependent variables were used for
further analysis in the structural equation model and the multiple
regression model to identify the determinants. The weighted average
values of the variables were used for the inferential analysis. Following
the results of the confirmatory factor analysis, the following revised
conceptual framework was designed (see Fig.4).
Fig. 4: Revised Conceptual Framework of the Determinants of

Internal Audit Effectiveness (Author’s compilation, 2019).
3.2 Assumptions of the models
To get reliable results in the structural equation model and multiple

regression model, the linearity, normality, multicollinearity,
heteroskedasticity, and model specification assumptions were
checked. Note: To solve the problem of heteroskedasticity,
heteroscedasticity-corrected standard errors, i.e., robust standard
errors, were applied.
In addition to the above assumptions regarding the structural
equation model, the value of threshold model fit indices, i.e.,
relative/normed chi-square, standardized root mean square residual,
root mean square error of approximation, goodness-of-fit statistic,
tucker –lewis index and comparative fit index of 1.891, 0.078, 0.068,
61
0.971, 0.963 and 0.956, respectively, were found to be acceptable

(Tabachnick & Fidell, 2007; Cangur & Ercan, 2015).
3.3 Results of the models
Table 2 (structural equation model result), and Table 3 and Table 4

(multiple regression model results) depict the effect of the seven
independent variables on the two dependent variables.
Table 2: Structural Equation Model Results
Source: Field Survey
Table 3: Multiple Regression Model Results
Note: p-value=0.000 and p-value 0.005 significant at 1 percent confidence

level, and p-value=0.06 significant at 10 percent confidence level (Source:
Field Survey).
62
Table 4: Multiple Regression Model Results
Note: p-value=0.000 and p-value=0.031 significant at 1 and 5 percent

confidence level, respectively (Source: Field Survey)
3.4 Regression Results and Discussion
The results of the revised conceptual framework or hypotheses of the

study based on Tables 2, 3, and 4 are discussed below.
Hypothesis 1: Top management support has a positive and

Under this hypothesis, two sub-hypotheses were tested. The effect of

top management support was tested on two dimensions: auditees‘
evaluation and audit quality. For both dimensions, top management
support was not found to be significant. Consequently, the hypothesis
was rejected. This implies that the management‘s response to the
audit findings and recommendations has no significant effect on
internal audit effectiveness, which corroborates the findings by Mihret
(2010) and Ebissa (2015). In addition, 66.67% of the interviewees
commented on auditees‘ acceptance and cooperation, and
understanding the role and importance of an internal audit as follows:
We inform the audit findings to the auditees before we issue the final
audit report to rectify the audit report. Since we started this method,
internal auditors‘ communication with auditees has improved. In
addition to this, we use an awareness creation approach by giving
clear explanation to auditees to understand that we audit jobs rather
63
than the people by emphasizing identification of policy and

procedural limitations and recommend possible improvements.
Though we used these approaches to resolve the existing
misunderstanding, the President of the university doesn‘t respond for
the audit findings or recommendations except his/her
acknowledgment.
Lack of a significant effect shows that the effectiveness of an
internal audit depends more on the internal audit charter, adequate
and competent internal auditors, and quality of audit work than on
top management support. This is because the internal audit charter
briefly describes the extent of the relationship between internal
auditors and management, smoothly communicates the accountability
and responsibility of auditors and management, briefly describes the
rights and duties of internal auditors, defines the scope of audit work,
describes the extent of access to documentation, and describes the
benefits and rewards of internal auditors (Ebissa, 2015).
Hypothesis 2: Organizational independence has a positive and

Two sub-hypotheses were tested under the organizational

independence, i.e. the effect of organizational independence on two
dimensions: auditees‘ evaluation and audit quality. The effect of
organizational independence on both dimensions was not significant.
Therefore, the proposed hypotheses were rejected. The result signifies
that the internal audit effectiveness of the study area is not strongly
affected by including any audit findings in the audit reports, by having
a successful relationship with the management team of the university,
by accessing audit information freely, and by including detailed
financial budgets and staffing information in the annual work plan of
the internal audit. This insignificant result is consistent with earlier
studies (Al-Khaddash et al, 2013; Hailemariam, 2014). Absence of
significant effect shows that the effectiveness of internal audits
depends more on the internal audit charter, adequate and competent
internal auditors, and quality of audit work than on organizational
independence. The existence of an internal audit charter in public
offices directly ensures the independence of internal auditors and
indirectly improves the effectiveness of internal auditors (Mulugeta &
Gebrehiwot, 2008; Ebissa, 2015).
64
Hypothesis 3: Adequate and competent internal auditors have a

positive and significant effect on internal audit effectiveness.
Two sub-hypotheses were assessed here. The effect of adequate and

competent internal auditors was checked on the two dimensions:
auditees‘ evaluation and audit quality. The result revealed that
adequate and competent internal auditors are significant determinants
of both dimensions. In accordance with the result of the structural
equation model, adequate and competent internal auditors were found
to be significant at 5% significance level for auditees‘ evaluation
(β=.452, p=0.039), and at 1% significance level for audit quality
(β=.243, p=0.005). With regards to the multiple regression model
result, however, it was found to be significant at 1% significance level
for auditees‘ evaluation (β=.452, p=0.000), and 5% significance level
for audit quality (β=.243, p=0.031). This indicates that the results
from the structural equation model and multiple regression model are
in conformity with the proposed hypotheses.
The results revealed that by developing good recruitment policies,
allowing auditors to participate in audit training and development
programs, and improving the educational status of internal audit
auditors, the institutions‘ internal audit effectiveness will be enhanced.
This result is consistent with the prior empirical studies (Al Matarneh,
2011; Alzeban & Gwilliam, 2014; Baharud-din et al., 2014;
Hailemariam; 2014, Drogalas et al., 2015; Mekelle, 2017). Moreover, all
interviewees raised the following points regarding the training
programs, competency and adequacy of internal auditors in the
university:
In the university, no other training is given to the internal auditors

except training that is delivered only to fresh internal auditors once
a year by the Ministry of Finance and Economic Cooperation of the
country, though the rules and the regulations allow forty hours
training for each internal auditor annually. Finance and scarcity of
trainers are the causes of this problem. Absence of training is one of
the causes of lack of competencies of internal auditors in the
universities, which impedes the independence and objectivity of the
internal auditors.
The key factor to consider when using the results of an internal audit
during an external audit is the competence of the internal auditors
65
(Deribe & Regasa, 2014). If the auditors‘ knowledge is not sufficient,

the report they produce cannot be trusted (Shamsuddin et al., 2014).
Moreover, as Mihret and Woldeyohannis (2008) aver, a sound training
budget is important for developing the skill and knowledge of internal
auditors.
Hypothesis 4: Internal audit charter has a positive and

Under this hypothesis, the effect of internal audit charter was tested
from two dimensions: auditees‘ evaluation and audit quality.
Reference to the structural equation model result revealed that
internal audit charter has a significant effect on both dimensions. Put
in detail, it was found to be significant at 5% significance level for
auditees‘ evaluation (β=.727, p=0.027), and at 10% significance level
for audit quality (β=.437, p=0.093). The multiple regression model
result however showed that the charter has a significant effect only on
auditees‘ evaluation. The result revealed that internal audit charter is
significant at 1% level of significance only on auditees‘ evaluation
(β=.727, p=0.005). With regard to the multiple regression model,
although the effect of internal audit charter on the audit quality was
insignificant, the proposed hypotheses were failed to reject. This
result implies that the findings of studies can differ when the model
type differs. The results signified that the existence of an internal audit
charter increases the effectiveness of the internal audit of the
institution because formal internal audit charter uses as a guideline for
internal auditors to perform their audit activities. This positive and
significant result is consistent with those of previous empirical studies
(Hailemariam, 2014; Ebissa, 2015). Internal audit charter is very
crucial for internal audit effectiveness as independence and objectivity
of internal auditors most of the time depend on the internal audit
charter of institutions (Mulugeta & Gebrehiwot, 2008; Ebissa, 2015).
Hypothesis 5: Quality of internal audit work has a positive and

In this particular hypothesis, the effect of the quality of internal audit

work was tested on two dimensions: auditees‘ evaluation and audit
quality. The results showed that the quality of internal audit work is
66
significant in both dimensions. The structural equation model showed

that the quality of internal audit work is significant at 1% significance
level for auditees‘ evaluation (β=.107, p=0.000) and at 1% significance
level for audit quality (β=.429, p=0.000). The multiple regression
model however showed that the quality of internal audit work is
significant at 10% significance level for auditees‘ evaluation (β=.107,
p=0.060), and 1% significance level for audit quality (β=.429,
p=0.000). The results from both models are in conformity with the
proposed hypotheses. They showed that the quality of internal audits
has a meaningful contribution towards increasing the internal audit
effectiveness of the institutions. That is, the internal audit
effectiveness in the institutions can be improved by giving full rights
to the internal auditors to determine the annual audit plan, increasing
the audit coverage, making regular follow-up for the audit findings
and recommendations, checking the university policies and
procedures, and preparing the document-based working paper. The
results are consistent with earlier empirical studies (Drogalas et al.,
2015; Mekelle, 2017).
Absence of follow-up to ensure whether or not corrective actions
are taken as per recommendations by the internal audit department
will result in loss of the impetus gained by audit recommendations
and threaten the credibility of internal audit. Besides, even if the
internal audit office is well planned and the findings significant, the
report may fall into disuse if it is not of a high quality (Mihret
&Yismaw, 2007).
Hypothesis 6: Information technology has a positive and

The effect of information technology was tested on the two

dimensions: auditees‘ evaluation and audit quality. The findings reveal
that, though information technology has no significant effect on the
auditees‘ evaluation of both models, it has significant effect when
tested in the structural equation model. The effect of information
technology on audit quality in the structural equation model was
found to be significant at 10% significance level (β =1.337, p-
value=0.064). This is additional evidence that the findings of studies
vary when the model type varies. The result show that internal
auditors with computerized information system skills will improve the
67
audit quality, but they do not bring any significant improvement to

the auditees‘ evaluation. Internal auditors need to acquire
computerized information systems knowledge and skills for the
purpose of planning, supervising, directing, reviewing the work
performed and to spend less time performing content and accuracy
tests of mathematical calculations of office accounts (Al-Refaee &
Siam, 2013; Deribe & Regasa, 2014).
Hypothesis 7: Objectivity of internal auditors has a positive and

Two sub-hypotheses were tested in this hypothesis also. They are

auditees‘ evaluation and audit quality. For both dimensions, the
objectivity of internal auditors was not found to be significant. Hence,
the hypotheses was rejected. The results showed that the internal
audit effectiveness of the institutions cannot be improved significantly
by periodic rotations of the audit assignments of the internal auditors.
The results are consistent with those of prior empirical studies
(Deribe & Regasa, 2014). The lack of material relationship between
these variables shows that internal audit effectiveness depends more
on internal audit charter, adequate and competent internal auditors,
and quality of audit work than on the objectivity of internal auditors.
This means internal audit charter is crucial for internal audit
effectiveness because internal auditor objectivity depends on it
(Mulugeta & Gebrehiwot, 2008; Ebissa, 2015).
4. Conclusion
The study found that adequate and competent internal auditors and
quality of internal audit are the main determinants in the two
dimensions—auditees‘ evaluation and audit quality—in both models.
The internal audit charter was also found to be significant in the two
dimensions in the structural equation model, but only has a significant
effect on auditees‘ evaluation in the multiple regression model. Top
management support, organizational independence, and objectivity of
internal auditors have insignificant effect on the two dimensions.
Moreover, although information technology has no significant effect
on auditees‘ evaluation in both models, it has a significant effect on
the audit quality in the structural equation model. With this outputs, it
68
can be concluded that adequate and competent internal auditors,

internal audit charter and quality of internal audit work are crucial
determinants in the studied institutions. From an overall theoretical
perspective, the findings of this study support the institutional theory
to the internal auditing domain.
5. Contributions of the study
5.1 Contributions to the literature
Although the significance of internal audits has increased in

developing countries, most previous studies on internal audit
effectiveness were conducted in developed countries. Therefore,
conducting this study in Ethiopia, a developing country, gives an
additional insight for empirical literature for other developing
countries. Moreover, the study was underpinned by the institutional
theory, which explained how contextual levels affect internal audit
effectiveness. Therefore, this study can be used as additional evidence
for the viability of this theory.
5.2 Contributions to the Practice
The study used the studied institutions to understand the factors that
determine internal audit effectiveness. Corporate governance
members such as audit committees, the board of directors‘ etc., can
take the findings of this study into account to better equip internal
audit functions and enhance corporate governance effectiveness.
Moreover, it informs the key priorities of the development of internal
audit as a profession in the IIA-Global and the IIA-Ethiopia.
6. Future Scope
To reduce the limitations of the study, the researchers suggest future

research be conducted particularly on the following: first, conducting
a similar study in other institutions and settings is important to
confirm the possibility of the findings to other institutions and
settings because the results of the studies vary by purpose, size,
structure, legal environment, cultural environment, and also by
persons within and outside the organization; second, to reduce
69
common method error, if the data are collected from the management
and the internal auditors, it will be a potential area for future studies;
and third, in the study, auditees‘ evaluation, added contribution of
internal audit, and auditing quality were used to measure internal audit
effectiveness. Therefore, using another measurement like external
audit fee, actual annual audit plans against the target annual audit
plans, and level of implementation of internal audit recommendations
are also another potential area for future research.
Competing interest statement
None.
References
Adams, M. B. (1994). Agency Theory and the Internal Audit.

Managerial Auditing Journal, 9(8),8-12.
doi.org/10.1108/02686909410071133
Al Matarneh, G. F. (2011). Factors Determining the Internal Audit
Quality in Banks: Empirical Evidence from Jordan. International
Research Journal of Finance and Economics, 73, 99 -108.
Ali Alflahat, M. T. (2017). The Impact of Internal Audit on
Organizational Performance: of Selected Jordanian Companies.
International Journal of Multidisciplinary Research and Development,
4(8), 285-289.
Al-Khaddash, H., Al Nawas, R., & Ramadan, A. (2013). Factors
Affecting the Quality of Auditing: The Case of Jordanian
Commercial Banks. International Journal of Business and Social
Science, 4(11). 206-222.
Al-Refaee, K., & Saim, A. (2013). The Effect of Using Information
Technology Increasing the Efficiency of Internal Auditing
Systems in Islamic Bank Operating in Jordan. Research Journal of
Finance and Accounting, 4(9), 2222-2847.
Alzeban, A., & Gwilliam, D. (2014). Factors Affecting the Internal
Audit Effectiveness: A Survey of the Saudi Public Sector. Journal of
International Accounting, Auditing and Taxation, 23(2),74-
86.DOI.org/10.1016/j.inta ccaudtax.2014.06.001
70
Baharud-din, Z., Shokiyah, A., & Ibrahim, M. S. (2014). Factors that

Contribute to the Effectiveness of Internal Audit in Public
Sector. International Proceedings of Economics Development and
Research, 70,126-132. DOI: 10.7763/IPEDR
Cangur, S., & Ercan, I. (2015). Comparison of Model Fit Indices Used
in Structural Equation Modeling under Multivariate normality.
Journal of Modern Applied Statistical Methods, 14(1), 152-167.
https://doi.org/ 10.22237/jmasm/1430453580
Cohen, A., & Sayag, G. (2010). The Effectiveness of Internal
Auditing: An Empirical Examination of its Determinants in
Israeli organisations. Australian Accounting Review, 20(3), 296-307.
DOI.org/10.1111/j. 1835-2561.2010.00092.x
Dellai, H., & Omri, M. A. B. (2016). Factors Affecting the Internal
Audit Effectiveness in Tunisian organizations. Research Journal of
Finance and Accounting, 7(16), 208-211.
Deribe, W. J., & Regasa, D. G. (2014). Factors Determining Internal
Audit Quality: Empirical Evidence from Ethiopian Commercial
Banks. Research Journal of Finance and Accounting, 5(23), 86-94.
Drogalas, G., Karagiorgos T. & Arampatzis K. (2015). Factors
Associated with Internal Audit Effectiveness: Evidence from
Greece. Journal of Accounting and Taxation, 7(7),113-122.
Ebissa, T. (2015). Determinants of Internal Auditors Effectiveness:
Case of Ethiopian Public Sectors. International Journal of Advances
in Management and Economics, 4(5), 73-83.
Gemechu, D. (Presenter). (2017, June). Ethiopian Broadcasting
Corporation (Television Broadcast). Addis Ababa, Ethiopia: EBC
TV. Official website. www.ebc.et.
Hailemariam, S. (2014). Determinants of Internal Audit Effectiveness in the
Public Sector, Case Study in Selected Ethiopian Public Sector
Offices (Masters Thesis, Jimma University, Ethiopia).
https://core.ac.uk/download/p df/29136383.pdf
Institute of Internal Auditors IIA. (2012). International Standards for the
Professional Practice of Internal Auditing (Standards). Altamonte
Springs, FL: Institute of Internal Auditors.
Mekelle, D. B. I. (2017). Assessment of the Effectiveness of Internal Auditing
Performance: A Case Study of Selected Branches of Dashen Bank in
Mekelle . Master‘s Thesis, Ethiopia: Micro-Link Information
Technology and Business College. https://www.Academia. edu/
36596083/
71
Mihret, D. G. (2010). Antecedents and Organizational Performance

Implication of Internal Audit Effectiveness: Evidence from Ethiopia.
Doctoral Dissertation, Toowoomba: University of Southern
Queensland. https://www.researchgate.net/publication/2771585
06
Mihret, D., & Woldeyohannis, G. (2008). Value-Added Role of
Internal Audit: An Ethiopian Case Study. Managerial Auditing
Journal, 23(6), 567-595. DOI.org/10.1108/026
86900810882110
Mihret, D., & Yismaw, A. (2007). Internal Audit Effectiveness: An
Ethiopian Public Sector Case Study. Managerial auditing
journal, 22(5),470-484. DOI.org/10.1108/026869007107 50757
Mulugeta, S., & Gebrehiwot, G. (2008). Internal Audit: Reporting
Relationship in Ethiopian Public Enterprises (Master‘s
Thesis, Addis Ababa University, Ethiopia).http://etd.a
au.edu.et/bitstream/handle/123456789/4884/Samuel%
20Mulugeta.pdf?sequen
Pickett, K. S. (2010). The Internal Auditing Handbook (3rded). British:
John Wiley & Sons, Ltd.
Shamsuddin, A., Manijegar, D. B., Kirupanangtan, K., Rahman, S., &
Selvanathan, S. (2014). Factors that Determine the Effectiveness of
Internal Audit Functions in the Malaysian Public Sectors. International
Journal of Business, Economics and Law, 5(1), 9-17.
Spraakman, G. (1997). Transaction Cost Economics: A Theory of Internal
Audit. Managerial Auditing Journal, 17, 323-330.
https://doi.org/10.1108/02686909710180670
Tabachnick, B. G. & Fidell, L. S. (2007). Using Multivariate Statistics (5th
ed.). New York: Allyn and Bacon.
Trines, S. (2018). Education in Ethiopia. Education System Profiles.
World Education News + Reviews.https://wenr.wes.org/2018/11/ed
ucation-i
72
Reproduced with permission of copyright owner.
Further reproduction prohibited without permission.

Demeke &kaur Determinants - of - Internal - Audit - Effectiveness - Evidence - From - Ethiopia

Uploaded by

Copyright:

Available Formats

You might also like

Demeke &kaur Determinants - of - Internal - Audit - Effectiveness - Evidence - From - Ethiopia

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Demeke &kaur Determinants - of - Internal - Audit - Effectiveness - Evidence - From - Ethiopia

Uploaded by

Copyright:

Available Formats

African Journal of Business and Economic Research (AJBER)

(Online) ISSN 1750-4562 (Print) ISSN 1750-4554

Determinants of Internal Audit Effectiveness:

Tadesse Demeke (Ph.D.)

Jasmindeep kaur (Professor)

The existence of multi-dimensional measures of internal audit effectiveness

Keywords: Determinants, Ethiopia, Higher education, Internal audit effectiveness,

Internal auditing and good governance are two sides of a coin.

and organizational phenomenon. Owing to these, the theories fail to

effectiveness found that availability of approved internal audit charter

2. Materials and Methods

2.1 Description of the Study Area

The study was conducted on Ethiopian public higher education

2.2 Research Framework

A mixed research design of both descriptive and explanatory methods

sampling techniques employed towards achieving the objective of the

Fig. 1. Hypothesized Confirmatory Factor Analysis Model for Nine

Where ―top management support, organizational independence,

Fig. 2. Hypothesized Confirmatory Factor Analysis Model for Three

Where ―auditees‘ evaluation , added contribution of internal audit and

Hypothesis 1: Top management support has a positive and

Hypothesis 3: Adequate and competent internal auditors have a

Hypothesis 4: Internal audit charter has a positive and significant

Hypothesis 5: Quality of internal audit work has a positive and

Hypothesis 6: Career and advancement have a positive and

Hypothesis 8: Information technology has a positive and significant

Hypothesis 9: Objectivity of internal auditors has a positive and

2.3 Operational definition of variables

The operational definition of the nine independent variables and the

Table 1: Definitions of measures of variables

respect to financial budgets and staffing

savings of internal audits to the institution

2.4 Reliability and validity

method with the nine internal auditors of the sample institutions.

2.5 Research model

Though most prior studies used a multiple regression model to

Yi = β0 + β1X1i + β2X2i +...+ βk Xk i + U i

2.6 Conceptual framework of the study

The conceptual framework of the study shows the graphic

Fig. 3: Conceptual Framework for the Predicted Determinants of Internal

The instruments were made to be fully anonymous to conceal the

3. Results and Discussion

3.1 Results of confirmatory factor analysis

The survey data of internal auditors was analysed using the

auditors, internal audit charter, quality of internal audit work,

Fig. 4: Revised Conceptual Framework of the Determinants of

3.2 Assumptions of the models

To get reliable results in the structural equation model and multiple

0.971, 0.963 and 0.956, respectively, were found to be acceptable

3.3 Results of the models

Table 2 (structural equation model result), and Table 3 and Table 4

Table 2: Structural Equation Model Results

Source: Field Survey

Table 3: Multiple Regression Model Results

Note: p-value=0.000 and p-value 0.005 significant at 1 percent confidence

Table 4: Multiple Regression Model Results

Note: p-value=0.000 and p-value=0.031 significant at 1 and 5 percent

3.4 Regression Results and Discussion