The perception of value adding in listed companies’ internal audit : a stakeholders’ perspective

Abstract

PURPOSE: The primary objective of this study is to determine the nature of value adding of the IAF and its major drivers by evaluating the nature of value adding and determining whether stakeholders perceive the IAF within MLCs as being value adding or not and identifying and assessing the value adding drivers of internal audit as perceived by the following stakeholders; IAs as the service providers and ACs, SM and EAs as the users.

DESIGN: To achieve the research objectives, this study adopted a mixed-method approach in collecting data. Twenty semi-structured interviews were carried out with eleven IAs, three AC members, three CFOs, two SMs and one EA.

FINDINGS: The findings indicate that the key stakeholders share the same idea of what constitutes a value adding IAF. Stakeholders believe that a value adding IAF is one that takes a consultative role and goes beyond the traditional tick-box approach. Furthermore, the findings reveal that IA is inherently value adding to an organisation, with stakeholder placing great importance on the assessment of internal controls, governance and risk management process. Effectiveness emerged as a prerequisite of value adding, whereby the latter cannot exist without the former. Nonetheless, stakeholders identified resource constraints, changes in IT trends and organisational resistance as being barriers to IAF effectiveness. Moreover, objectivity and independence materialised as vital factors for value addition, along with access to the AC and appropriate recognition within the organisation. Most importantly, stakeholders unanimously perceive the IAF to add significant value to their organisation and role.

CONCLUSIONS: The study concluded that stakeholders unanimously believe that the IAF within MLCs is value adding if it is proactive and attuned with the organisation’s specific processes, strategies and goals and seeks to enhance them while making feasible and cost-conscious recommendations. With respect to drivers of value adding, the study concludes that IA characteristics, IAF characteristics, internal audit activities and performance measurement methods are important. Moreover, having appropriate access to the AC, a formal audit charter and a regular report on internal controls to be significant for value addition

IMPLICATIONS: This study emphasises the value added IAFs contribute to their organisations and the drivers which result in such value adding. It is hoped that the recommendations set out reinforce the importance of IAFs and provoke regulators to enhance requirements regarding such functions.