The internal audit function

TLDR

This paper investigates the current roles and responsibilities of the internal audit function and the factors needed for its effectiveness, while also examining existing performance evaluation practices. The authors employed semi‑structured interviews with key corporate governance actors to explore the evolving role, design, measurement, and evaluation of internal audit. The study finds that internal audit has expanded and refocused, yet its performance evaluation mechanisms have not kept pace, creating a misalignment that hinders assessment of whether the function meets stakeholder expectations and providing guidance for regulators, auditors, and audit committees.

Abstract

Purpose The purpose of this paper is to provide insights into the current roles and responsibilities of the internal audit (IA) function and the factors perceived to be necessary to ensure its effectiveness. The current performance evaluation practices of IA are also examined. Design/methodology/approach Semi‐structured interviews were utilised to elicit the perceptions of key corporate governance actors about the evolving role of IA, as well as IA effectiveness, in terms of its design, measurement and evaluation. Findings The results of the study suggest significant expansion and refocus of the role of IA and perceptions of its effectiveness. However, the findings also suggest that performance evaluation mechanisms of IA have not evolved contemporaneously. The misalignment between the role and evaluation gives rise to difficulty in assessing the extent to which IA functions are meeting stakeholders' expectations. Practical implications The findings are useful in informing the deliberations of regulators and standard setters, as well as providing a benchmark for internal auditors and audit committees. The insights are also relevant for external auditors who are required to consider various aspects of corporate governance, including the objectivity and quality of IA. Originality/value The use of semi‐structured interviews facilitates an in‐depth insight and understanding of the perceptions of roles, effectiveness and evaluation of IA and adds depth to the predominantly questionnaire‐based survey approach of prior studies.