Date of Award


Degree Type


Degree Name

Doctor of Philosophy


School of Business


Faculty of Business and Law

First Advisor

Dr Zubaidah Ismail

Second Advisor

Dr Ann-Claire Larsen


One of the preventive measures to situations akin to world financial crises increasingly forwarded is effective internal audit function (IAF) (e.g., Imhoff, 2003; Mohamad & Muhamad Sori, 2011). Internal audit, a component of corporate governance, continues to evolve due to changes in business strategies and requirements placed on it by legislators. The roles of internal auditors and audit committees (ACs), the key personnel in IAFs, are changing to a more value-added approach as business strategies move towards corporate sustainability and organisational excellence. Suggestions forwarded to improve the performance or determining the quality of IAF include effective involvement of ACs in internal audit activities, the employment of competent internal auditors and determining the impact of internal audit on corporate governance (e.g., Mohamad & Muhamad Sori, 2011, Sarens, 2009, Turley & Zaman, 2007). Research on the quality of internal audit has focussed mainly on the relationships of internal audit with internal control and ACs (e.g., Fadzil, Haron, & Jantan, 2005; Mat Zain & Subramaniam, 2007; Turley & Zaman, 2007). However, none has linked the impact of internal audit performance to corporate governance.

This study provides an agency of value view, explaining the effectiveness of IAF and its impact on corporate governance. Using a convergent mixed methods approach, the main findings from survey data collected from corporate members of the Institute of Internal Auditors Malaysia are compared and integrated with perspectives from chief audit executives of selected public listed companies interviewed. The factors investigated are the structure of the IAF, activities of best practices in internal auditing, ACs’ involvement as stated by the Malaysian public listing guidelines (Bursa Malaysia, 2000, 2009b) and the World Bank’s corporate governance framework (World Bank, 1991). An exploration on the extent of collaborations and combined assurances in internal audit is also carried out.

The primary analysis on the probability of an effective IAF and profiling of the internal audit activities, level of AC involvement and areas of corporate governance is made using the Rasch model. Non-parametric tests are also used to determine the statistical significance of the relationships of the components investigated. In-depth interview data are analysed using template analysis.

The findings support the establishment of an in-house IAF with a definitive team size and professional expertise for an effective IAF. Other IAF components are member experience, combined audit activities and collaborations of audit activities. Although these other components are not significantly related to the effectiveness of IAF, the indepth interviews provided more explanations on their importance in internal audit. An important structure of the IAF is the AC’s oversight role. The findings also indicate that the level of ACs’ involvement in the reviews of each stage of the internal audit process contributes to the overall effectiveness of IAF. Due to issues in staffing and the changing business environment, collaborations particularly in risk management, information technology audits and quality audits, are increasingly being used as a strategy in internal audit to provide value add services. Further, as suggested by Sarens (2009), the level of internal audit performance could now be identified to its impact on corporate governance, for example such as in areas of expenditure management, revenue management, analysis of data and conflict resolution.

The results have implications on the policy regarding internal control for public listed companies, favouring an in-house internal audit function as opposed to outsourcing the function, to address the recommendations on the effectiveness of ACs and its relationship with IAFs. The practice of internal audit in future should be more collaborative to harness the expertise and experience of other departmental personnel in producing effective internal audit, ultimately creating a greater impact on corporate governance.

Included in

Accounting Commons


Paper Location