Cilt 21 • Sayı 1 • Ocak 2021

SS. 1 / 15
EGE AKADEMİK BAKIŞ / EGE ACADEMIC REVIEW Doi: 10.21121/eab.873867
Başvuru Tarihi: 17.09.2020 • Kabul Tarihi: 20.12.2020

Factors Affecting the Internal Audit Effectiveness:

A Research of the Turkish Private Sector Organizations
Ahmet ONAY1 İD

ABSTRACT
The aim of present study is to examine the factors that have an impact on internal audit effectiveness (IAE) in Turkey. The
datas of research were obtained from 187 internal auditors who are members of The Institute of Internal Auditors-Turkey,
working in private sector organizations through the questionnaire prepared as a result of the item pool assessment. The
relationship between the IAE and six main factors revealed by applying Principle Component Analysis was tested with
Multiple Regression Analysis. The results supported that specifications of internal audit had a direct impact on IAE. The
results of study showed that the factors that have an impact on IAE are management’s support, competence, independence,
participation in risk management activities and cooperation with external auditor, respectively. This study has replaced
one of the missing pieces of the literature. The results would underpin executives and academics to focus on IAE in Turkish
private sector.
Keywords: internal audit effectiveness; internal audit in developing countries; private sector audit; principle component
analysis; regression analysis.

1. Introduction Internal audit is a dynamic profession that needs to

Corporate scandals that have shaken the world in constantly update itself in order to respond to today’s
last 30 years have increased internal audit function to conditions of changing business environment. In
addition to providing assurance services to business
a much more prominent position within the organi-
operations, internal audit profession has also to pro-
zations than before. Due to its unique position within
vide consultancy services to senior management as a
organizations, internal audit has become an integral
strategic mind co-partner to meet its changing needs.
component of the corporate governance mosaic today
By taking on a consultancy role, internal auditors reach
(Soh & Martinov-Bennie, 2011, 605). Nowadays, internal
the potential to bring their professions to a respectable
audit is considered as the most prominent cornerstone position that adds value to their businesses. Beyond
of corporate governance (Gramling et al., 2004, 196). its traditional role, focusing on internal control and
Effectiveness is one of the most prominent issues that financial compliance, internal audit can establish good
internal auditors should consider in order to establish governance in organization by undertaking a broad
good governance both in terms of their functions and consultancy role within the scope of risk management
organizations. The prominence of internal audit’s role activities. Today’s ever-changing business environment
in the field of corporate governance causes internal has made it more prominent to explore how effectively
audit effectiveness (hereafter IAE) to remain a topic of internal audit fulfills its objectives (Alzeban & Gwilliam,
constant interest (Endaya & Hanefah 2016, 161). 2014).

Author profile: Ahmet Onay is a Assistant Professor of Accounting at Eskisehir Tecnical University. He has a Ph.D. in Accounting from
the Anadolu University. Onay’s research interest and publications are in the areas of accounting education, enterprise risk management,
International Financial Reporting Standards, and internal audit.
Conflict of interest disclosure: The authors declare that they have no conflict of interest.
Eskisehir Tecnical University, Vocational School of Transportation, Basın Şehitleri Ave. 152, 26470 Eskisehir / Turkey,
1

[email protected]

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Ahmet ONAY

As stated in current definition made by The Institute IAE a field of study that should be focused in private
of Internal Auditors (IIA), “internal audit acts with a sector businesses operating in developing countries.
systematic and disciplined approach to evaluate and For these reasons listed above, it is aimed to contribute
improve effectiveness of organization’s risk manage- to the elimination of existing gap in the research area
ment, control and governance processes” (IIARF, 2013, in this study.
2). The current definition of internal audit points to
existence of a future-oriented paradigm that supports 2. Literature and Hypothesis Development
those who are audited to conduct their activities more
effectively and efficiently (Goodwin, 2004). The main 2.1. Internal Audit Effectiveness
purpose of internal audit is to provide organizational The effectiveness of internal audit function plays
effectiveness and efficiency by bringing constructive a major role in the success of organization. In order to
criticism (Cohen & Sayag, 296, 2010). According to determine factors that have an impact on IAE, many
Chambers (1992), effectiveness means “doing the right studies have been conducted on samples consisting
thing”; efficiency means “doing well”. Effectiveness is of participants of both parties demanding and suppl-
more prominent than efficiency. It is not prominent ying internal audit service. International Standards for
how efficiently service is provided if internal audit is theProfessional Practice of Internal Auditing (ISPPIA)
not effective (Lenz et al., 2018, 3). has been used as a basic guide in selection of variab-
les that should be tested in order to determine IAE.
Internal audit, which is a dynamic profession whose
In addition, factors such as economic conditions of
scope and boundaries change in line with new business
countries, directives of regulatory public institutions
needs, deserves concern and attention of more future
and sector in which the enterprise operates, influenced
academic research (Lenz et al., 2018, 1). Many studies
determination of variables in the models developed
(Arena & Azzone 2009; Mihret et al. 2010; Coetzee &
by researchers.
Erasmus, 2017) point out that studies focusing on the
factors affecting the effectiveness of internal audit and Sarens (2009) recommended that characteristics
their relationship with each other should be conducted. of internal auditors and internal audit functions be
The literature needs extensive empirical studies that examined as prominent study topics for future studies
examine more variables that have a potential impact on IAE as a result of the academic examination made on
on IAE. The narrow literature dealing with IAE in private papers presented at the Internal Audit and Corporate
sector enterprises has shown that factors affecting Governance Conference held in Netherlands.
effectiveness and possible relationships are not fully
Arena & Azzone (2009) analyzed the data obtained
examined. There is a need to conduct further research
from participants by dividing them into three in their
in this specific fields.
study on sample of internal auditors in Italy. In the study,
The vast majority of researches in literature to quality of internal audit procedures, characteristics of
determine the factors that have an impact on IAE internal audit and outcomes of internal audit activity
are focused on public sector. When examining sector have been associated with IAE. According to results
on which current studies focused, research method, of the study, IAE is affected by characteristics of audit
sampling, and hypotheses in previous studies, it is team, audit process and organizational relationships.
clear that factors directing IAE need more research IAE is measured by level of execution of the internal
(Erasmus & Coetzee, 2018, 93). Many of studies for audit’s recommendations by managers.
public sector have suggested that researches should
Alzeban & Gwilliam (2014) examined relationship
be repeated for private sector in future studies (Coet-
between IAE and five independent variables with
zee & Erasmus, 2017, 238). The lack of consensus on
multiple regression analysis on data collected from
factors affecting IAE in the previous studies for private
internal auditors and business managers working in
sector indicates the gap of research area. There are not
Saudi Arabia. The results showed that support of mana-
enough studies in the international literature to meet
gement is variable that has the most positive effect on
the importance of the subject, and many academics
IAE. Similar studies have been suggested to be carried
(Mihret & Yismaw, 2007; Ahmad et al., 2009; Mustika,
out especially in developing countries.
2015; Endaya & Hanefah, 2016; Salehi, 2016; Erasmus &
Coetzee, 2018) recommend further research, especially Drogalas et al. (2015) collected data from the partici-
focusing on developing countries. This situation makes pants consisting of employees of a few companies listed

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 Factors Affecting The Internal Audit Effectiveness: A Research of The Turkish Private Sector Organizations

on the stock exchange in Greece in order to determine independent variables that are predicted to affect IAE
factors related to IAE. The findings of study showed in the literature are classified as separate structures.
that quality of internal audit activity, competence of One of the prominent purposes of the study is to form
audit team, independence of internal audit and support basis for future studies. It has been suggested that the
of management are main factors that positively affect research methodology should be repeated in future
IAE. The results of study reveal that independence of studies for private sector.
internal audit is the most prominent factor. In future
Current issues affecting the business world have led
studies, it has been proposed to test variables such
to study of different variables in different periods. While
as cooperation with external auditor or to examine
the literature on IAE is more focused on characteristics
opinions of different parties.
of internal auditor, such as competence, independence
Coetzee & Erasmus (2017) obtained a 92-item and performance, then it has focused on relations with
scale by applying exploratory factor analysis on data external auditor, senior management and board of
obtained from employees of public organizations ope- directors. In the table below, a summary of prominent
rating in South Africa in order to determine variables studies conducted for private sector in the literature
that steer and measure IAE. In the study, the literature on IAE is presented.
was reviewed to determine factors that steer IAE. The

Table 1: Summary of literature on IA effectiveness in private sector companies.

Year Authors Independent Variables Method Region

Competence, Size/Structure of IAF, Management

Descriptive
2003 Al‐Twaijry et al. Support, Independence, Scope of Work, Saudi Arabia
Statistics
Organizational Characteristics

Competence, IA and EA Relationships, Independence,

Descriptive
2008 Yee et al. Quality Work/Measure Performance, Professional Singapore
Statistics
Proficiency

Competence, Size/Structure of IAF, Organizational Regression

2009 Arena & Azzone Italy
Status/Characteristics Analysis

Management Support, Independence, Professional Regression

2010 Cohen & Sayag Israel
Proficiency, Quality Work/Measure Performance Analysis

Soh & Martinov‐ Competence, IA and EA Relationships, Organizational

2011 Qualitative Australia
Bennie Status/Characteristics, Size/Structure of IAF

Competence, IA and EA/Other Relationships, Qualitative,

2012 Abu‐Azza Management Support, Independence, Scope of Descriptive Libya
Work, Organizational Status/Characteristics Statistics

Competence, IA and EA Relationships, Management

2014 Lenz et al. Support, Organizational Status/Characteristics, Size Quantitative Germany
of IAF

Competence, Independence, Management Support, Regression

2015 Drogalas et al. Greece
Quality Work/Measure Performance Analysis

Competence, Management Support, Independence,

Regression Many
2015 D’Onza et al. Professional Proficiency, Organizational Status/
Analysis Countries
Characteristics

Competence, IA and EA/Other Relationships,

Regression
2016 Salehi Size/Structure of IAF, Management Support, Iran
Analysis
Independence

Organizational Status/Characteristics, Scope of Work, Structural

2018 Azzali & Mazza Italy
IA and EA/Other Relationships, Size/Structure of IAF Equation Model

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Ahmet ONAY

Current approaches that impose responsibilities on Abu-Azza, 2012; D’Onza et al., 2015; Drogalas et al.,
internal auditors such as governance, internal control 2015). The results of previous studies have not been
and risk management, which affect level of achieving able to reach full consensus on whether independence
business objectives, have influenced variables included is the most prominent factor in the effectiveness of
in developed researching models. The perspective pro- internal audit. For example, Yee et al (2008) provided
vided by the previous studies underlined that internal evidence that the independence of internal audit
auditors and chief audit executives, as well as senior function is not the most prominent factor for IAE in
management, have responsibilities to ensure IAE. the results of research that it restricted to Singapore
This perspective is aware of the responsibilities of all private organizations. On the other hand, Drogalas et
parties that strive to achieve objectives of business, al (2015) discovered in their research in Greece that the
which have an impact on IAE, and supports focus on most prominent factor affecting IAE is independence
the right areas. However, IAE is a dynamic workspace of internal audit department. Considering previous
and should be supported by more future studies. The discussions, following hypothesis is formulated:
change in business environment directly affects
H1. Independence of internal audit positively affects
internal audit, which is already a dynamic profession.
IAE.
IAE is directly affected by professional regulations and
business needs. Although ISPPIA has adopted factors 2.3. Size of Internal Audit Department
that have an impact on IAE as current standards for
In order for internal audit to assume its responsibili-
both organizations and internal auditors (IIA, 2018),
ties properly, it must first of all have a sufficient number
number of comprehensive studies examining private
of qualified staff (Arena & Azzone 2009, 44). According
sector companies operating in developing countries
to ISPPIA 2030, Chif Audit Executive is responsible
is limited. Previous studies emphasized precisely that
for providing necessary, appropriate and sufficient
new studies are needed. The present study will make
resources for implementation of audit plan, effectively
a unique contribution to the literature, as it is first
managing resources, reporting resource needs to senior
comprehensive experimental study that addresses
management, and supporting senior management in
Turkish private sector in the field of IAE.
resource allocation. As stated in Practice Advisory 2030-
2.2. Independence of Internal Audit 1, one of the resources needed to fulfill internal audit
responsibility is employment of a sufficient number of
The first condition for IAE is to provide conditions
internal auditors.
that guarantee independence within organization.
The definition of internal audit emphasizes that it is an The size of internal audit department greatly affects
independent and objective activity. The concept that is structure of internal audit function. While large internal
closely related to independence is objectivity (Stewart audit department s are more likely to have a more
& Subramaniam, 2010, 330). ISPPIA has defined inde- hierarchical management structure, auditors are more
pendence as being free from conditions that threaten autonomous in small departments (Prawitt, 2003, 178).
objectivity and objective appearance. Such a threat The fact that auditors will have to take on a wider range
should be managed both at the level of internal auditor of different types of tasks in internal audit departments
in individual context and at the level of internal audit with insufficient staff indicates a potential hazard that
department in the functional context. Independence is threatens IAE. On the other hand, size of internal audit
an inevitable requirement for internal audit profession. department directly affects time required for audit
ISPPIA has expressed independence of internal audit as activity. In internal audit departments that do not have
the most prominent indicator of IAE. Internal auditors enough staff, auditors face time pressure to fulfill their
should not have a position within their organization duties on time. In addition, internal audit department,
where their independence can be questioned and which has a sufficient number of staff, can rotate more
cannot continue their activities with their objective auditors to achieve more objectivity. By rotating more
professional judgment (Vanasco, 1994). auditors, conflicts of interest that damage auditor
objectivity can be avoided.
Previous studies have tested opinions of participants
on whether internal audit departments can achieve Previous studies have shown that when there is a suf-
effectiveness in private sector organizations that do not ficient number of internal auditors, probability of inter-
have conditions that ensure independence of internal nal audit’s effectiveness is high. For example, the results
audit function (Yee et al., 2008; Cohen & Sayag, 2010; of Salehi (2016) showed that research participants listed

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 Factors Affecting The Internal Audit Effectiveness: A Research of The Turkish Private Sector Organizations

the fact that internal audit departments have sufficient and if they do not have necessary competence, IAE will
number of internal auditors in Iranian private sector decrease. When internal auditors do not have sufficient
organizations among factors that positively affect IAE. knowledge and skills, their recommendations are
Many studies show that there is a positive correlation ignored by senior management and IAE is damaged
between having sufficient number of internal audi- (Peursem, 2005). On the other hand, competence of
tors and performance of internal audit departments internal audit is one of the most prominent criteria that
(Al‐Twaijry et al., 2003; Soh & Martinov-Bennie, 2011; affect the level of trust of external auditors in internal
Lenz et al., 2014). For example, Al ‐ Twaijry et al. (2003) audit activities (Gramling et al., 2004; Al‐Twaijry et al.,
reported that the CAE of a company operating in Saudi 2004; Lenz et al., 2018). Previous studies (Yee et al., 2008;
private sector commented that relatively small internal Arena & Azzone 2009; Soh & Martinov-Bennie, 2011;
audit departments were unable to perform all tasks, D’Onza et al., 2015; Drogalas et al., 2015) have focused
neglected many tasks, and focused only on a broad on competence of internal audit departments as one
perspective. Based on previous discussions, following of the criteria that internal audit function should have
hypothesis is formulated: in order to achieve high efficiency in private sector
H2. The size of internal audit department positively organizations. For example, Arena & Azzone (2009)
affects IAE. determined that insufficient knowledge and skills of
internal auditors in Italy private sector companies had
2.4. Competence of Internal Audit a negative impact on IAE. In accordance with existing
Technical competence is essential for effectiveness support in the literature, following hypotheses have
of internal audit function (Mihret et al. 2010). The stan- been formulated:
dards published by IIA demand competence of internal H3. The competence of internal audit positively
auditors. ISPPIA 1210 states that internal auditors affects IAE.
must have knowledge, skills and other competencies
required to fulfill their individual responsibilities. In 2.5. Management Support
addition, it is one of the leading responsibilities of top Internal audit, which is positioned as strategic
managers to equip internal audit departments with mind co-partner of senior management in organi-
competencies required to fulfill their responsibilities zational hierarchy of enterprise, must be supported
collectively or acquire them. Many academic studies by management in order to maintain its activities
(Messier & Schneider 1988; Maletta, 1993; Selim & with optimum performance. Senior management is
Mcnamee, 1999) have confirmed that competence is responsible for establishing conditions that allow the
an prominent component of internal audit. internal audit function to perform its duties within the
According to ISPPIA 1230, it is imperative that organization. The ability of internal audit to maintain its
internal auditors develop their competencies through independence depends on meeting these conditions,
continuous professional development. Internal audi- that is, on support of management. The prominence
tors must take into account continuous professional of the relationship between internal audit and senior
development in order to have the competencies ne- management is clear in determining independence and
eded to sustain their activities in a changing business objectivity of internal auditor (Al-Twaijry et al. 2003).
environment (Selim & Mcnamee, 1999). In order for the The support of senior management therefore plays a
internal audit profession to assume new roles in risk ma- vital role in effectiveness of audit process. Internal audit
nagement and corporate governance, internal auditors managers and auditors should gain support of senior
need to create a new set of skills (Arena & Azzone 2009). management in order to improve audit effectiveness.
In addition, the internal auditors are expected to have Support of senior management and board of directors
the knowledge and skills to assume responsibilities for internal auditing is developed with relationships
that do not conflict with the characteristics of their based on mutual trust and significant interaction (IIA,
profession in areas such as corporate risk management, 2018).
governance, compliance and information technologies
Previous studies (Cohen & Sayag 2010; Lenz et al.,
(Onay & Erdoğan, 2019).
2014; Drogalas et al. 2015; D’Onza et al., 2015) confirmed
According to Al ‐ Twaijry et al., (2003), competence that IAE depends on support of management. Albrecht
of staff and managers of internal audit departments is et al. (1988) argue that open support of management is
vital to effective functioning of internal audit activities, variable that has the greatest impact on IAE. According

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Ahmet ONAY

to Sarens & De Beelde (2006), internal audit needs sup- and therefore audit fees are reduced when external
port of senior management in order to gain the general auditors deem it appropriate to benefit from internal
acceptance and recognition of its organizational struc- audit activities (Felix et al., 2001; Wood, 2004; Suwaidan
ture. For this, internal audit should try to gain support & Qasım 2010; Mat Zain et al., 2015).
of management by showing its potential to add value
Many professional standards guide cooperation
to organization. Cohen & Sayag (2010) determined
and coordination between internal and external audit.
the prominence of senior management’s support in
ISA 610 (2013) published by IFAC and SAS 65 (1991)
their research in Israel organizations to discover factors
published by AICPA guide external auditors when they
of IAE. It has been emphasized that decisions such as
plan to benefit from direct assistance or work of internal
recruitment of specialized internal auditors, providing
audit function to narrow scope of their audit proce-
career opportunities for audit staff and providing
dures. ISPPIA 2050-1 (2013), published by IIA, guides
organizational independence to audit activities have
internal auditors to prevent unnecessary repetition
a positive effect on IAE. Arena and Azzone (2009) me-
of same work when collaborating with the external
asured IAE based on how well recommendations were
auditor. As stated, professional standards emphasize
taken into account by senior management. Sarens &
the contribution that internal and external audit can
De Beelde (2006) classified implementation of internal
provide to each other. Coordination and cooperation
audit’s recommendations by senior management as
one of the indicators of management support for between the two functions positively affects IAE. Time
internal audit. Lenz & Hahn (2015) has confirmed that and resource savings by reducing unnecessary repeated
relationship between internal audit and management, efforts create opportunities for internal auditors to focus
which is its principal client, is still an area of study that on other responsibilities. Many academic studies have
is worth investigating. The lack of empirical studies confirmed that lack of coordination between internal
reflecting situation in this field, especially in developing and external auditors and absence of collaboration
countries, is one of the motivations of our study. With affects performance of internal audit in the private se-
this motivation, following hypothesis is formulated: ctor organizations of developing countries negatively.
Moreover, studies in the literature (Yee et al., 2008; Soh
H4. Management support positively affects IAE. & Martinov-Bennie, 2011; Abu-Azza, 2012; Lenz et al.,
2014) have determined that collaboration with external
2.6. Cooperation with External Auditor
auditor increases IAE in private sector enterprises. For
Together with internal and external audit, audit example, Abu-Azza (2012) reported that majority of
committee and senior management, they are con- internal audit managers in Libya organizations have
sidered as the four basic cornerstones of corporate view that collaboration with external auditors is bene-
governance. Internal and external audit are leading ficial for internal audit. With the orientation of previous
representatives of business stakeholders (Gramling studies, following hypothesis is formulated:
vd., 2004, s. 196). They fight together against danger
of moral hazard and adverse selection caused by in- H5. Cooperation with external auditor positively
formation asymmetry and conflict of interest between affects IAE.
managers and stakeholders (Jensen & Meckling, 1976).
Internal auditors and external auditors should be in 2.7. Risk Management Activities
coordination in their activities, respect each other and Internal audit is a function that serves organization.
make use of each other’s abilities (Sawyer vd., 2005, IAE is a risk-based concept that contributes to orga-
s.8). By improving coordination and cooperation nization’s achievement of its purposes by improving
among internal and external auditors, they can both corporate governance quality. An effective internal
increase effectiveness and efficiency of audit activities audit function is expected to review key risk areas to
and benefit from each other’s work (Wood, 2004: 2). contribute to organization’s purposes (Lenz & Hahn,
When client business has an effective internal audit 2015, s.7). Corporate governance is included in definiti-
function, external auditors can identify control risk on of internal audit as an umbrella concept that covers
low and narrow scope of their testing. Based on per- risk management and internal control. Corporate ma-
formance of internal auditors in audit tests, external nagement and risk management saddle internal audit
auditors can complete their audit in less time and at function with a responsibility of being a part of their ac-
less cost. Because of activity advantages provided by tivities to ensure its organization achieves its purposes.
effective cooperation between the parties, audit costs IIA’s position reports and current COSO Enterprise Risk

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 Factors Affecting The Internal Audit Effectiveness: A Research of The Turkish Private Sector Organizations

Management Framework require a risk-based internal contacted face to face and via telephone. This process
audit. IAE in today’s complex business environment is was completed between second half of 2019 and first
associated with ability to assume these responsibilities. quarter of 2020.
The effectiveness of internal audit function becomes
At the end of data collection process, 194 partici-
possible only when audit activities are conducted on
pants were provided to answer our questionnaire. In
a risk-based basis. As a result, success level of internal
calculating sufficient sample size, n> 50 +8 m (where m
audit function’s contribution to organization is directly = number of variable) formula is recommended (Taba-
related to its impact on enterprise risk management. chnick & Fidell, 2013). Since there were 7 variables in our
Modern internal audit activities must be carried out research model, 187 participants were found sufficient.
on a risk-based basis. Internal audit should be at center Demographic characteristics of our participants are
of potential threats and problems facing its organiza- presented in Table 2.
tion. It is supported by the literature that being a part
of enterprise risk management and that internal audit
Table 2: Professional demographics of the
activities focus on more risky and prominent issues has
participants.
a positive effect on its effectiveness (Allegrini & D’Onza,
2003; Spira & Page, 2003; Sarens & De Beelde, 2006; Frequency Percentage
Arena & Azzone, 2009; Castanheira et al. 2010; Sarens Female 83 44%
Gender
et al., 2012; Coetzee & Lubbe, 2013; Lenz & Hahn, 2015). Male 104 56%
Sarens & De Beelde (2006) reported that risk-based in- 37 and less 50 27%
ternal audit activities increased effectiveness of internal Between 38-44 45 24%
audit function in qualitative study they conducted on Age
Between 45-53 51 27%
Belgian and American companies. Participants of their
54 and more 41 22%
study stated that internal auditors are worried about
3 and less 54 29%
effectiveness of internal audit in cases where internal
Number Between 4-5 25 13%
auditors are not able to participate adequately with of internal
increase of their enterprise risk management activities Between 6-9 44 24%
auditors in
(2006, p.76). Castanheira et al. (2010) stated that lack the IAD Between 10-12 30 16%
of risk-oriented conduct of internal audit activities 13 and more 34 18%
in many private sector enterprises caused negative 4 and less 55 29%
results. It can be said that more internal audit function Between 5-8 44 24%
Work
contributes to control of primary risks to which orga- Experience Between 9-15 52 28%
nization is exposed, more it increases its effectiveness.
16 and more 36 19%
In the light of previous studies in the literature, final
hypothesis is formulated:
H6. Carrying out risk-based activities of internal audit 3.2. Measurement Tool Development
positively affects its effectiveness. In the process of compiling measurement tool of
our study, opinions of 10 academicians working in the
3. Methodology field of internal audit and 10 internal auditors with a
high level of professional experience were consulted.
3.1. Population and Sample of the Study First of all, a comprehensive pool of 173 items was
Our study population working in the private sector formed, consisting of expressions that are included in
company in Turkey and is also designated as internal questionnaires used in many studies (Arena & Azzone
auditors who are members of IIA-Turkey. According to 2009; Cohen & Sayag 2010; Alzeban & Gwilliam 2014;
the annual report 2019, IIA-Turkey has 2731 members. Drogalas et al. 2015; Salehi 2016; Endaya & Hanefah
By reaching entire target universe during data collec- 2016; Coetzee & Erasmus 2017) dealing with IAE, and
tion process, internal auditors willing to participate in suggested by the authors of present study as a result
our research were contacted. The questionnaire forms of detailed literature review. Then, an item pool assess-
were sent to target population by e-mail three times at ment study was conducted with field experts consisting
two-month intervals. In addition, in order to increase of academicians and internal auditors. The question
number of participants, many internal auditors were items cannot serve purposes of the study if there is an

7
Ahmet ONAY

insufficient reflection of concept under investigation IA ensure that it adds value to the business. (2) IA im-
or if it goes beyond its limits (DeVellis, 2003, s.64). Each proves organizational performance. (3) IA determines
question item was evaluated by the specialist team in adequacy and effectiveness of organization’s control
terms of how suitable it was for purposes of the study systems. (4) IA evaluates the accuracy and reliability
and its understandability. of financial reports. (5) IA reviews compliance with
The extent to which the measurement tool or policies, plans, procedures and regulations. (6) IA
each item serves purposes of the study is expressed reviews means of safeguarding assets. (7) IA reviews
as content validity. Lawshe (1975) technique was used economical, effective and efficient use of resources.
to determine the content validity. In this technique, (8) Recommendations in the internal audit report are
content validity ratios (CVR) are obtained from opinions implemented in a timely manner. (9) IA develops cont-
of the specialist regarding any item. The content validity rols to ensure that corrective actions are implemented
ratio of an item is calculated by the following formula: and effective. (10) Suggestions put forward by internal
N indicates the total number of specialist, auditors are largely implemented.
and indicates the number of specialist who express Independence of Internal Audit (IND): This variable
an appropriate opinion on the item. was measured with 7 items: (1) Internal auditors can su-
Significance of items is tested with statistical criteria. bmit their reports from bottom to senior management
As in our study, with data obtained from 20 experts, in organization. (2) Internal auditors can freely audit all
the lowest acceptable value for an evaluation at level departments within the organization and specifically
of α=0.05 significance is 0.42 (Veneziano & Hooper, employees without additional permissions and can
1997). Items below this value are removed from the examine related documents. (3) Internal auditors
measuring tool. As a result of the item pool assessment have the indispensable independence to fulfill their
study, question statements whose consensus statistics professional obligations and duties. (4) Internal auditors
were below the threshold value were eliminated and a are exposed to the intervention of top management
questionnaire consisting of 39 items was obtained. The while conducting their audits. (Reverse Scored). (5) The
content validity index of obtained questionnaire is 0.86. chief audit executive has first-hand contact to board
This ratio shows that the questionnaire is suitable for of directors. (6) Internal auditors are not required to
purposes of the study and has high comprehensibility. perform work that does not relate to their profession.
(7) Terminating work of internal audit requires approval
3.3. Measurement of Variables of audit committee, and/or board of directors.
In the design of questionnaire, which is measu- The Size of Internal Audit Department (SIZE): This
rement tool of our study, the factors that negatively continuous independent variable was measured th-
affect data collection were taken into consideration. rough an open-ended question to determine number
An optimum balance should be established between of internal auditors.
number of items in questionnaire and the sample size
that is intended to be reached (Fowler, 1995). For this, Competence of Internal Audit (COMP): This variable
variables of our research model were measured with was measured with 6 items: (1) The professional know-
an optimum number of questions. Five point likert ledge of internal auditors is at the level to fulfill their
type rating scale was preferred in design of the ques- responsibilities in the best way. (2) Internal auditors
tionnaire (1=strongly disagree to 5=strongly agree). attend educational seminars for continuous training.
In addition, there are four open-ended questions in (3) Internal auditors have sufficient professional qualifi-
our measurement tool aiming to determine number cations to perform mandatory and voluntary rotations.
of auditors that internal audit departments has and (4) The vast majority of internal auditors have necessary
demographic characteristics of participants such as certifications such as CIA, CFE and CPA. (5) Internal audit
gender, age and professional experience. The variables function has right mix of competencies in areas of ex-
in our model were measured by analyzing answers of pertise such as data security, taxation, audit software,
internal auditors to questions in measurement tool. The new business technologies. (6) Internal auditors have
question statements included in the questionnaire for relevant training that enables them to audit all systems
measuring each variable are listed below. of the organization.
Internal Audit Effectiveness (IAE): The dependent Management Support (MS): This variable was
variable of our model was measured with 10 items: (1) measured with 5 items: (1) Top management supports

8
 Factors Affecting The Internal Audit Effectiveness: A Research of The Turkish Private Sector Organizations

internal audit to fullfil its tasks and liabilities. (2) IA is an prominent indicator of reliability and has been
function has the financial resources required for its tested with the Cronbach Alpha (CA) coefficient. PCA
audit-related tasks. (3) The response to internal audit was preferred to obtain an empirical summary of the
reports by senior management is reasonable. (4) Senior experiment set for use in subsequent analysis (Stevens,
management has open communication with chief 1996, p.363) and to overcome problems arising from
audit executive. (5) IA function employs the necessary factor uncertainty (Tabachnick & Fidell, 2013, p.640).
number of auditors and employees to undertake its For the factor rotation, promax was carried out from
tasks. oblique approaches acting with the assumption that
Cooperation with External Auditor (CEA): This vari- there was a correlation between variables. The factors
able was measured with 7 items: (1) There is effective obtained as a result of this analysis are defined as the
communication between internal and external audit. variables of multiple regression analysis carried out
(2) External auditors are tolerant and positive towards later.
internal auditors. (3) External auditors allow internal Before testing our model on which we tested effect
auditors to express concerns about audit work. (4) of independent variables on IAE, the assumptions of
External and internal auditors reach a consensus on multiple regression were checked. In addition to normal
the timing of their work in the areas they cooperate for distribution, it has been confirmed that multicollinea-
their common interests. (5) External auditors discuss rity and singularity assumptions are not violated and
their audit plans with internal auditors. (6) External have sufficient sample size. As stated earlier, outliers
auditors meet regularly with internal auditors. (7) were eliminated at beginning of data scanning process.
Both external and internal auditors make their working Ordinary least squares (OLS) multiple regression was
papers available to each other. performed to test our hypotheses that deal with rela-
Involvement of internal audit in Risk Management tionship between IAE, which is the dependent variable
(RM): This variable was measured with 4 items: 1) IA of our model, and six predictive variables we discussed
strives to improve risk management and evaluates in detail in the previous section.
its effectiveness. (2) A considerable part of work of
internal auditors consists of risk assessment activities. 4. Findings and Discussion
(3) Internal auditors implement control risk self-assess-
4.1. Principle Component Analysis
ment techniques (CRSA). (4) IA determines whether the
organization’s risk responses match the risk appetite. The results obtained from Kaiser-Meyer-Olkin (KMO)
and Bartlett tests evaluating the suitability of the data
3.4. Data Analysis for factor analysis were interpreted before PCA was per-
Before applying statistical analysis, the normality formed in order to reveal factor structures of scale and
that was prerequisite for both factor analysis and reg- to measure construct validity. The p<0.001 significance
ression analysis was tested. Kolmogorov-smirnov test level was calculated as KMO Value 0.957 and Bartlett
statistics that measure normality, skewness-kurtosis Value 6517. The calculated values show that the datas
values and histogram graphs show that our data shows are suitable for factor analysis. In order to reach the
normal distribution and normality assumption is not most suitable factor structure, factor extraction criteria
violated. were taken into consideration while making analyzes.
According to this; (1) only factors with eigenvalues
Firstly the principle component analysis (PCA)
above 1 were retained, (2) items with factor loads less
was applied in order to obtain factors consisting of
than 0.50 were excluded, and (3) having higher loads
a more steerable number of the data obtained with
under more than one factor, and those with a difference
measurement tool prepared to measure dependent
below 0.10 items were removed from the scale. Five
and independent variables in our research model. By
items (IAE5, IND4, COMP5, CEA5, CEA6) were removed
means of PCA analysis, measurable and observable
from the measurement tool, taking into account the
items are gathered under a small number of variables
factor extraction criteria. As a result of the analyzes, six
that are not directly observable, while the construct
interpretable factors explained 78% of total variance
validity of our questionnaire is measured. In addition,
were obtained.
internal consistency, which is the degree to which the
expressions in the data compilation tool can measure Factors consisting of items related to each other
the same intended feature for each measurement, were named in a manner consistent with the model

9
Ahmet ONAY

of our research. According to this, the first factor exp- the fifth factor explained 4% of the variance is termed
lained 52% of the variance is named as “internal audit “competence”. The last factor included five items that
effectiveness”. The second factor explained 9% of the explained 3% of the variance is named as “management
variance is named as “independence”. The third factor support”. Descriptive statistics of the items, factor loads,
explained 5% of the variance is termed “risk manage- Cronbach’s Alpha coefficients and explained variance
ment”, the fourth factor explained 5% of the variance rates are shown in Table 3.
is termed “collaboration with the external auditor” and

Table 3: Descriptives statistics and factor structure

Factor Item Mean SD Loading Cronbach’s Alpha Explained Variance (%)

IAE3 4,18 0,717 0,884

IAE7 4,05 0,774 0,865
IAE1 4,18 0,710 0,846
IAE4 4,18 0,700 0,802
Internal Audit
IAE9 4,17 0,698 0,793 0,947 51,56
Effectiveness (IAE)
IAE2 4,23 0,720 0,783
IAE6 4,23 0,684 0,742
IAE10 4,13 0,744 0,732
IAE8 4,21 0,679 0,730
IND2 3,99 0,741 0,919
IND1 4,01 0,748 0,913
IND5 4,04 0,736 0,893
Independence of IA (IND) 0,957 8,808
IND6 4,00 0,726 0,881
IND7 3,98 0,758 0,848
IND3 4,00 0,751 0,841
RM3 3,91 0,781 0,964
Risk Management RM1 3,92 0,796 0,960
0,979 5,422
Activities of IA (RM) RM2 3,93 0,804 0,951
RM4 3,94 0,794 0,949
CEA7 3,94 0,756 0,850

Cooperation between CEA3 3,85 0,809 0,799

IA and external auditors CEA4 3,85 0,789 0,788 0,905 4,857
(CEA) CEA1 3,87 0,775 0,781
CEA2 3,87 0,826 0,774
COMP4 4,01 0,779 0,931
COMP1 3,98 0,718 0,819
Competence of IA
COMP3 3,93 0,729 0,800 0,898 4,389
(COMP)
COMP2 4,01 0,726 0,762
COMP6 3,98 0,729 0,733
MS3 4,01 0,773 0,920
MS2 3,99 0,783 0,853
Management Support for
MS1 4,02 0,776 0,793 0,933 3,246
IA (MS)
MS4 4,06 0,798 0,772
MS5 4,00 0,786 0,711
KMO: 0.957; Bartlett: 6517; Total Variance explained: %78

10
 Factors Affecting The Internal Audit Effectiveness: A Research of The Turkish Private Sector Organizations

The average scores of each statement in the ques- 4.2. Regression Analysis
tionnaire are included in Table 3. The average scores The hypotheses developed in the previous section
obtained with the five-point likert scale show that were tested with the following regression model:
level of participation in statements of independent
variables is approximately 4 and level of participation IAE = + SIZE + IND + COMP
in statements of the dependent variable (IAE) is slightly
above 4. Statements for each variable have averages + MS + CEA + RM +
close to each other. It is understood from the averages
In order to obtain reliable results from the regres-
of statements that perception of participants in the Tur-
sion analysis, it is desirable to have a correlation of
kish private sector firms regarding IAE audit and related
more than 0.30, preferably between dependent and
variables is quite high. Average scores are higher than
independent variables, while a very high correlation
those obtained in many similar studies in developing
level of more than 0.90 between independent variables
countries (Arena & Azzone, 2009; Cohen & Sayag, 2010;
leads to a multicollinearity problem (Pallant, 2016).
Alzeban & Gwilliam 2014; D’Onza et al., 2015; Drogalas
Firstly correlation analysis was performed in order to
et al., 2015; Coetzee & Erasmus, 2017).
evaluate that independent variables of the model are
The CA coefficient calculated to determine how related to dependent variable at least to a certain level
compatible statements in measurement tool perform and the probability of multicollinearity problem arising.
together is presented in Table 3. IAE variable consisting Correlation between variables is presented in Table 4.
of 9 items has 0.947, IND variable consisting of 6 items Correlation was determined between IAE dependent
has 0.957, RM variable consisting of 4 items has 0.979, variable and all independent variables except SIZE.
CEA variable consisting of 5 items has 0.905, COMP In addition, a high correlation was found among all
variable consisting of 5 items has 0.898, and MS variable other independent variables except SIZE. However,
consisting of 5 items has 0.933 CA reliability coefficient. the correlation level is among the acceptable limits
CA coefficients calculated for variables indicate a high mentioned above.
level of reliability.

Table 4: Correlation coefficients for the variables in the model.

Variables Mean SD 1 2 3 4 5 6 7
1 IAE 4,174 0,598 1
2 SIZE 7,818 5,131 0,076 1
3 IND 4,005 0,674 0,689* 0,105 1
4 COMP 3,981 0,621 0,674* 0,059 0,620* 1
5 MS 4,014 0,696 0,745* 0,031 0,681* 0,596* 1
6 CEA 3,876 0,674 0,623* -0,079 0,618* 0,577* 0,655* 1
7 RM 3,924 0,769 0,489* 0,135 0,365* 0,278* 0,432* 0,444* 1
N= 187 * Correlation is significant at the .01 level.

To determine whether a multicollinearity problem values must be above 0.10 and VIF value below 2.5 or
exists, tolerance value and variance inflation factor (VIF) at least 4 (Pallant, 2016; Hair et al., 2010). The tolerance
are commonly used criterias. These criterias have been and VIF values, which are among the acceptable limits
examined to evaluate the possibility of multicollinearity presented in Table 5, support that regression analysis
in depth. To ensure that the regression results are not results are not suspected due to multicollinearity.
overshadowed by multicollinearity problem, tolerance

11
Ahmet ONAY

Table 5: Results of regression analysis

Variable B Std. Error β t p-value Tolerance VIF
Constant 0,558 0,190 2,929 0,004
SIZE 0,001 0,005 0,009 0,201 0,841 0,924 1,082
IND 0,170 0,056 0,191** 3,021 0,003 0,432 2,314
COMP 0,265 0,055 0,275** 4,804 0,000 0,528 1,892
MS 0,300 0,056 0,349** 5,397 0,000 0,415 2,407
CEA 0,037 0,056 0,041* 0,660 0,510 0,444 2,251
RM 0,134 0,038 0,173** 3,569 0,000 0,742 1,348
Predictors: (constant), size of the IAD, independence of IA, competence of IA, management support for IA,
cooperation between IA and external auditors, risk management activities.

R=0,829; = 0,688; Adjusted = 0,677; F = 66,085; *p ≤ 0.1; **p ≤ 0.01

The regression analysis results in Table 5 provide a has a strong influence on IAE. The high significance of
comprehensive and precise review of the our research’s these two variables has empirically demonstrated that
hypotheses. Ordinary least squares (OLS) multiple reg- the two theoretically necessary features of internal audit
ression was used to assess ability of six independent have a strong influence on IAE. International standards
variables to predict IAE. A statistically significant effect strongly emphasize the importance of independence
of SIZE variable on the dependent variable could not and competence in conducting an effective internal
be determined. It was determined that IND, COMP, MS, audit activity (Prawitt, 2003). In addition, significant
RM independent variables had statistically effect on the positive results were obtained in terms of RM and COMP
dependent variable at the level of p ≤ 0.01 significance. variables included in the model to determine how to
In addition, it was found that CEA had a statistically carry out the internal audit activity more effectively
effect on IAE at the level of p ≤ 0.10 significance. 68.8% in practice. These findings show that internal audit is
of the total variance related to IAE dependent variable an activity that should be carried out with a focus on
was explained by the independent variables. Variance risk management in today’s risk-surrounded business
explanation rate corrected according to degree of environment, and cooperation with the external
freedom was measured as 67.7%. It is determined that auditor should be ensured in order to obtain benefits
rate of dependent variable is explained by independent such as not repeating the same efforts unnecessarily.
variables at a high level. Finally, no relationship has been found between the
number of auditors working in the internal audit
The value of F=66.085 reached by ANOVA test department and IAE. This finding can be interpreted
evaluating significance of the model as a whole was as the qualitative characteristics of internal audit are
found statistically significant at the level of p <.001. The much more important than quantity, when the whole
significance of the F value in Table 5 confirms that in- model is taken into account.
dependent variables in the regression model generally
explain IAE. In other words, IAE can be explained in a 5. CONCLUSION
meaningful way with independent variables included
The founder of modern Turkey, Mustafa Kemal
in the model.
Ataturk’s reforms, have today reached a different level
The findings obtained as a result of the analysis of the of economic and cultural development of Turkey in
regression model showed that the most contributing the Middle East. After the proclamation of republic in
factor to IAE is the support of the management. Mana- 1923, the value given to science and rational thought
gement support is the primary factor in determining is basic cause of gaining different specifications from
IAE. Because the potential factors that are expected to other countries in the region. The results of our research
have an impact on IAE are theoretically dependent on have made a unique contribution to existing literature
management support (Sarens & De Beelde, 2006). The by revealing the factors that determine IAE in a country
findings obtained in the research definitely support this with characteristics of Western and Eastern civilization.
situation. On the other hand, the findings confirm that A role model for developing countries with many
the independence and competence of internal audit features that our research conducted in Turkey, offers

12
 Factors Affecting The Internal Audit Effectiveness: A Research of The Turkish Private Sector Organizations

unique results for academics and practitioners. This through responses of participants to the questionnaire.
study completed a missing piece of the international Participants may tend to convey different opinions
literature mosaic on IAE. than they actually are. Although making the data
In this study, independent variables, which are collection process more difficult, measuring variables
estimated to have an impact on IAE in previous studies, in research model with more provable indicators
are examined on the sample obtained from Turkish other than opinions of participants will weaken these
private sector organizations. These are the variables of limitations. The average of responses given to the
independence of internal audit, necessary professional questionnaire is higher than that obtained in many
competence of internal auditors, support of mana- similar studies on samples from developing countries
gement for internal audit, cooperation with external (Arena & Azzone, 2009; Cohen & Sayag, 2010; Alzeban
auditor, number of auditors working in internal audit & Gwilliam 2014; D’Onza et al., 2015; Drogalas et al.,
department and participation of internal auditors in 2015; Coetzee & Erasmus, 2017). These findings differ
risk management activities. The results revealed that from other countries to status of internal audit in Turkey
the most prominent driving force of IAE is manage- and explained by showing the development of internal
ment support. The results of the study showed that audit activities over the years. On the other hand, the
the factors that have the greatest impact on the of fact that participants of our research consist only of
IAE after management support are competence, inde- internal auditors reveals possibility of bias. It is natural
pendence, participation in risk management activities, that internal auditors offering audit services tend to see
and collaboration with external auditor, respectively. their activities positively. This bias can be eliminated by
On the other hand, the number of auditors working repeating our research on participants who received
in the internal audit department has no effect on audit services in future studies.
IAE. When this finding is evaluated together with the
finding that competence is one of the most prominent In this study, internal audit departments of private
variables explaining IAE, it is concluded that quality sector organizations in a developing country, which
is more prominent than quantity in terms of human has characteristics of both western and eastern culture,
resources in internal audit units of Turkish private sector were examined. When considering Turkey’s unique
organizations. economic and cultural characteristics, the results of
the study show it is clear that future studies with simi-
The results of the study showed that two variables larity. This includes future studies in both developing
with the most positive support on IAE are management
countries in the Middle East and developed countries
support and independence. This result is compatible
of Europe. Limited literature on IAE should be enriched
with previous studies. In many of the previous studies
with future research that examines private or public
(Mihret & Yismaw, 2007; Yee et al., 2008; Cohen & Sayag,
sector in both developed and developing countries.
2010; Alzeban & Gwilliam 2014; Drogalas et al., 2015),
In addition, the limitations of our research in terms of
the most influential variable was management support
the selection of model variables can be eliminated by
or independence. Again, as in our study, these two
including different variables that affect internal audit
variables have positive correlations with other variables
in the model. As a result of the item pool assessment
in most previous studies. ISPPIA and IIA reports have
determined the independence of internal audit and study, the questionnaire obtained in our research can
management support as indispensable factors for be used completely or partially according to selection
internal audit activities to be carried out as desired. of variables in future research.
Internal Audit should have an organizational status Despite the many limitations mentioned earlier, this
that can carry out its activities objectively, and it should study has revealed relationship between IAE in Turkish
be able to make its decisions unaffected, including private sector organizations and the most emphasized
management, and also gain management support in factors in previous studies and ISPPIA. Internal audit is
order to obtain access to the resources it needs to carry an virgin area with a large number of research questi-
out its activities and to avoid audit restrictions within ons, which requires more scientific research. This study
the organization. was supported by the international literature with an
Collecting research data through questionnaire example from Turkey. This study supports more rese-
causes some methodological limitations by nature. arch from Turkey and other developing countries from
IAE and related independent variables were measured having the potential to overcome its own limitations.

13
Ahmet ONAY

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