CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In the dynamic and complex business landscape, organizations continually seek strategies to enhance their performance and ensure sustained success. The role of the internal audit function has emerged as a critical factor influencing organizational performance and efficiency. Internal audit serves as a systematic and independent evaluation process aimed at providing assurance on the effectiveness of an organization's risk management, control, and governance processes. The impact of the internal audit function extends beyond mere compliance; it plays a pivotal role in shaping the strategic direction of the organization, identifying areas for improvement, and promoting transparency and accountability. Abbott and Parker (2000).
Numerous studies have delved into the multifaceted relationship between the internal audit function and organizational performance. Research by DeZoort and Salterio (2001) highlights the positive correlation between effective internal audit activities and improved financial reporting quality. The internal audit function, when robust and well-integrated, can act as a proactive mechanism for risk management, thereby preventing financial irregularities and safeguarding the organization's reputation. Additionally, findings from studies such as those by Gambhir and Singh (2018) emphasize the role of internal audit in fostering a culture of compliance and ethical behavior within an organization, leading to enhanced overall performance.
Efficiency within the internal audit function itself is a crucial aspect influencing its impact on organizational performance. As asserted by Knechel and Salterio (2016), an efficient internal audit function is characterized by timely identification of risks, effective resource allocation, and the ability to adapt to changing organizational needs. A well-functioning internal audit team not only provides assurance on existing processes but also contributes to continuous improvement initiatives, ensuring that the organization remains agile and responsive to emerging challenges. Research by Abbott and Parker (2000) emphasizes that the efficiency of the internal audit function is contingent upon factors such as skilled personnel, the appropriateness of audit methodologies, and the support it receives from top management. Top of Form
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1.2 Statement of the ProblemTop of FormBottom of Form
The statement of the problem in the context of the "Impact of Internal Audit Function and Efficiency on Organizational Performance" underscores the need to address critical challenges and gaps in current organizational practices. One primary concern is the insufficient understanding of how internal audit functions operate within the broader organizational framework and how their efficiency correlates with overall performance. The literature indicates a scarcity of comprehensive studies that delve into the nuanced aspects of internal audit efficacy and its direct influence on key performance indicators. Additionally, there is a recognized gap in the identification and measurement of specific variables that contribute to or hinder the efficiency of internal audit processes. Understanding these intricacies is crucial for organizations aiming to optimize their internal audit function as a strategic asset for risk management, compliance, and performance improvement. By pinpointing and addressing these challenges, this study seeks to provide actionable insights for organizations looking to enhance their internal audit practices and, consequently, bolster their overall performance in an increasingly competitive business landscape.
1.3 Objectives of the Study
The main objective of the study is to examine impact of internal audit function and efficiency on organizational performance. Specific objectives of the study are:
- This objective aims to establish whether a robust internal audit function, characterized by factors like qualified personnel, adequate resources, and independent oversight, translates to improved organizational performance in specific areas like profitability, operational efficiency, or adherence to regulations.
- This objective goes deeper, investigating whether the efficiency of the internal audit function, meaning its ability to conduct timely and effective audits with optimal resource utilization, further strengthens the positive impact of internal audit function on organizational performance.
- This objective dives into the specifics, exploring which internal audit practices, such as risk-based audits, proactive communication with management, or focus on continuous improvement recommendations, most significantly contribute to improved organizational performance across different contexts.
1.4 Research Questions
To guide the study and achieve the objectives of the study, the following research questions were formulated:
- 1. To what extent does the strength of the internal audit function, as measured by specific criteria, correlate with improved organizational performance indicators (e.g., financial, operational, compliance)?
- 2. Does internal audit efficiency, as measured by timeliness, resource utilization, and audit quality, moderate the relationship between internal audit function strength and organizational performance?
- 3. Which specific internal audit practices, identified through qualitative or quantitative analysis, demonstrate the strongest positive association with improved organizational performance in different industry sectors or organizational sizes?
1.5 Research Hypothesis
The following research hypothesis was developed and tested for the study:
Ho: There is no statistical significant relationship between internal audit and organizational performance.
1.6 Significance of the Study
The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:
Firstly, the paper will benefit major stakeholders and policy makers in the accounting sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.
Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analysed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organisations used as a case study.
Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.
1.7 Scope of the Study
The study is delimited to GTCO, Uyo. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.
1.8 Limitations of the Study
The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.
1.9 Organization of the Study
The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.
Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.
Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis is discussed in this chapter.
Chapter Four highlights data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.
Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.
