Impact of internal audit quality on the financial performance of insurance companies : evidence from Kosovo

Abstract

PURPOSE: Increasing financial performance requires the application of adequate internal audit practices. Aiming to this study, was requested to determine the effect of internal audit on financial performance in insurance companies in Kosovo.

METHODOLOGY: The return on assets (ROA) ratio was used to measure financial performance. Data for this dependent variable were obtained from the six-month statements of insurance companies operating in Kosovo during the period 2015 - 2021. Internal audit was viewed from the perspective of internal auditing standards, the professional competence of the internal auditor, the independence of the internal auditor and the efficiency of internal audit, which were also taken as independent variables. The researcher applies a survey questionnaire to each member of the target population consisting of members of the Board of Directors, members of the Audit Committee, managers of various departments, internal audit officers, legal officers and finance officers. Also, three control variables (growth, size and age of the company) were taken. As data analysis techniques are used quantitative analysis and regression analysis.

FINDINGS: From the findings, the study concludes that professional competence had a significant positive impact, in contrast to the efficiency of internal audit, which had a negative impact on the financial performance of insurance companies. The study also found that the other two independent variables (internal audit standards and internal auditor independence) had a negative correlation with financial performance but not significant. The size of the insurance company also had a significant positive relationship, in contrast to the age of the company which had a negative and significant impact on the financial performance of insurance companies operating in Kosovo.

ORIGINALITY/VALUE: The study aims to increase the importance of internal audit for insurance companies, as in general, the importance is given only to external audit and its reports. It is also hoped that the recommendations will support decision-making authorities in addressing and identifying current problems and taking measures to eliminate them. Based on the above findings, this study provides insights to regulators and policymakers about the importance of audit quality in enhancing financial performance.