International Journal of Economics, Finance and Management Sciences

2014; 2(2): 132-137 Published online March 20, 2014 (http:// doi: 10!11&4'/$!i$e%#!20140202!13 !sciencepublishin""roup!co#/$/i$e%#)

Exploring internal auditor independence motivators: Kenyan perspective

Charles Guandaru Kamau*, Samuel Kariuki Nduati, Agnes Ndinda Mutiso
(o#o)en*atta +ni,ersit* o% -"riculture and .echnolo"* ((/+-.), (u$a, /en*a

Email address:
"uandaru#an0*ahoo!co!u) (1! 2! /a#au), san)ariu)i0"#ail!co# (3! /! 4duati), #utisoa"nes20*ahoo!co# (-! 4! Mutiso)

To cite this article:

1harles 2uandaru /a#au, 3a#uel /ariu)i 4duati, -"nes 4dinda Mutiso! 56plorin" 7nternal -uditor 7ndependence Moti,ators: /en*an Perspecti,e! International Journal of Economics, Finance and Management Sciences. 8ol! 2, 4o! 2, 2014, pp! 132-137! doi: 10!11&4'/$!i$e%#!20140202!13

Abstract: .he institute o% internal auditors e6pressed the role o% internal audit as that pro,idin" ob$ecti,e assurance and
consultin" ser,ices desi"ned to add ,alue and i#pro,e an or"ani9ation:s operations! 7n per%or#in" this role the internal auditors are re;uired b* the international standards to e6ercise pro%essional independence and ob$ecti,it*! -udit independence #eans %reedo# %ro# conditions that threaten #ental attitude hich is unbiased! .he literature su""ests se,eral %actors hich a%%ect the audit independence in /en*a, hich are e6plored in this stud*! .he stud* collected its data usin" a sel%-#ade ;uestionnaire hich as distributed a#on" auditors in /en*a so as to establish the status o% internal auditor:s independence in /en*a! .he data collected as sub$ected to #ultiple re"ression anal*sis so as to test h*potheses and #a)e conclusions on internal audit independence and its #oti,ators in /en*a! .he stud* established that that auditor:s in,ol,e#ents in #ana"e#ent and audit co##ittee e%%ecti,eness, a#on" other %actors ha,e si"ni%icant in%luence on the internal auditor:s independence in /en*a!

Key ords: -uditor 7ndependence, -uditor 3)ills, 1on%lict o% 7nterest, /en*a

!" #ntroduction
.he 7PP< standard nu#ber 1100 re;uires that an internal audit acti,it* be independent and ob$ecti,e in per%or#in" its duties! .he standard %urther clari%ies that the chie% audit e6ecuti,e should report to a le,el ithin the or"ani9ation that allo s the internal audit acti,it* to %ul%ill its responsibilities! .he internal audit acti,it* should also be %ree %ro# inter%erence in deter#inin" the scope o% internal auditin", per%or#in" or), and co##unicatin" results =1>! .he standards also re;uire the internal auditors to ha,e an i#partial, unbiased attitude and a,oid con%licts o% interest! 77- =1> de%ines audit independence as ?the %reedo# %ro# conditions that threaten ob$ecti,it* or the appearance o% ob$ecti,it*@! Ab$ecti,it* is de%ined as ?an unbiased #ental attitude that allo s internal auditors to per%or# en"a"e#ents in such a #anner that the* ha,e an honest belie% in their or) product and that no si"ni%icant ;ualit* co#pro#ises are #ade@! Man* countries e6a#ined ha,e ta)en steps to enhance auditor independence b* adherin" to codes o% ethics; pro#ul"atin" pro%essional auditin" standards; and detailin" situations that #a* constitute i#pair#ent o% auditor independence =2>!

3te art and 4a,a =3> elucidates that the ,alue and credibilit* o% assurance ser,ices pro,ided b* auditors is deri,ed %ro# %unda#ental assu#ptions o% independence o% #ind and independence in appearance! .he* %urther state that it is surprisin" that a lar"e bod* o% research has e6a#ined auditor independence and ob$ecti,it*, but this has been predo#inantl* in the conte6t o% e6ternal audit! .his is one o% the #oti,ations %or this particular stud*! 7nternal auditin" de%inition b* 77- =1> clearl* describes internal audit as an independent and ob$ecti,e assurance and consultin" acti,it*! .his i#plies that it is #andator* %or an internal audit %unction to operate independentl* %or it to achie,e its #andate e%%ecti,el*! 3e,eral studies that ha,e been carried out in /en*a indicate that internal audit depart#ents: e%%ecti,eness ran"es %ro# in e%%ecti,e to a,era"el* e%%ecti,e! .hese studies %urther hi"hli"hts that auditor:s independence is belo a,era"e in #ost cases =4> =B> =&>! 7nternal audit e%%ecti,eness is stron"l* in%luenced b* internal audit ;ualit* and #ana"e#ent support =7>! 7nternal audit ;ualit* is enhanced b* the depart#ent:s independence and ob$ecti,it*! .he best support that #ana"e#ent can o%%er internal audit depart#ent is b* allo in" it to operate ith a reasonable de"ree o% independence! .his research ill

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there%ore e6plore internal audit independence #oti,ators in a /en*a:s perspecti,e "i,en that the studies that ha,e so %ar been carried out ha,e casted so#e doubts on the independence o% internal audit depart#ents! .he re#ainder o% this paper is structured as %ollo s! .he %irst section pro,ides a brie% re,ie o% literature hich includes the theories upon hich this stud* is based! .he second section brie%l* describes the #ethodolo"* that as e#plo*ed in this research! .his section %or#s the basis %or the %or#ulation o% the h*potheses that ere tested! .he third section pro,ides an anal*sis o% the #oti,ators that i#pact upon the internal audit %unction:s independence! .he %ourth section pro,ides the results o% the stud* and a critical anal*sis o% the results relati,e to the theoretical position! .he %inal section presents the conclusions and reco##endations!

#ore li)el* to ha,e i#paired audit independence! 2.2. Audit Committee Effectiveness -n audit co##ittee is co#posed o% a selected nu#ber o% #e#bers o% board o% directors o% a co#pan*! .he responsibilities o% the audit co##ittee include helpin" auditors re#ain independent o% #ana"e#ent! .he ob$ecti,es o% both internal auditin" and the audit co##ittee are co#pli#entar* and e%%ecti,e coordination produces s*#biotic bene%its %or each and or"ani9ation as a hole =12>! <ir#s hose audit co##ittees ha,e less %inancial e6pertise, less accountin" %inancial e6pertise and non-accountin" %inancial e6pertise are #ore li)el* to be %aced ith internal control ea)nesses in their s*ste#s =13>! 2ood in and Feo =14> established that the position o% the internal audit %unction can be enhanced b* an e%%ecti,e audit co##ittee! -udit co##ittee acts as an independent %oru# in hich internal auditors #a* raise #atters a%%ectin" #ana"e#ent =1B>! .he audit co##ittees in this instance then enhances to internal audit independence and ob$ecti,it* b* o%%erin" an alternati,e reportin" channel! 2ood in =1&> ent a step %urther to point out that audit independence is enhanced i% the #e#bers o% the audit co##ittee ha,e the technical e6pertise to understand the or) o% the internal audit %unction in addition to bein" independent! .his con%ir#ed an earlier stud* b* Ca"hunandan et al! =17> ho established that those co##ittees that are co#prised e6clusi,el* o% independent directors, and ith at least one #e#ber ha,in" accountin" or %inance e6pertise, ere #ore li)el* to ha,e lon"er #eetin"s ith the 1-5, to pro,ide access to the 1-5, and to re,ie internal audit pro"ra#s and results! -udit co##ittees should pla* an o,ersi"ht role on internal audit b* assessin" the independence and or) per%or#ance o% the internal audit %unction =1'>! -udit co##ittees there%ore #a* %or# one o% the critical a*s o% enhancin" internal audit independence! 2.3. Auditor Skills 77- 3tandard nu#ber 1210 re;uires internal auditors to possess the )no led"e, s)ills, and other co#petencies needed to per%or# their indi,idual responsibilities! .he internal audit acti,it* collecti,el* is re;uired possess or obtain the )no led"e, s)ills, and other co#petencies needed to per%or# its responsibilities =1>! -uditors carr* out their or) b* collectin" audit e,idence to support their conclusions! .his act o% e,idence collection re;uires that the internal auditor be independent =1E>! 1ollection o% audit e,idence is there%ore a %unction o% audit s)ills! Cesearch has sho n that #ost or"ani9ations pre%er an in-house internal audit %unction, ho e,er one o% the #ost i#portant %actors %or those see)in" to outsource is access to speciali9ed s)ills =20>! .his could #ean that the auditors ho are #ore s)illed are li)el* to be #ore ob$ecti,e and independent hile carr*in" out their or)! <urther studies ha,e also hinted that the internal audit depart#ents that ha,e adopted 7PP< and operates as per the re;uire#ents thereo% usuall* #aintains

$" %iterature &e'ie

3e,eral studies ha,e been carried out on internal audit independence and ob$ecti,it*! Ce,ie o% literature identi%ied so#e #oti,ators o% internal -udit independence hich includes the %ollo in": 2.1. Involvement by Internal Auditors in Management Activities -"enc* theor* contends that internal auditin", in co##on ith other inter,ention #echanis#s li)e %inancial reportin" and e6ternal audit, helps to #aintain cost-e%%icient contractin" bet een o ners and #ana"ers ='>! 7n order to enhance the internal audit independence, auditors are not re;uired to acti,el* in,ol,e the#sel,es in the da* to da* #ana"e#ent o% the or"ani9ation! .heir #ain concern should be ris) #ana"e#ent =1>! Drent =E> %urther added to the #ana"e#ent in%luence theor*, notin" that e6ecuti,e and line #ana"e#ent, b* utili9in" the internal audit %unction %or ,arious e6tended roles, do not al a*s appreciate the need %or independence! Drent =E> also ar"ued that #an* e6ecuti,es and #ana"ers ,ie internal auditors as their or)ers, and hence ,ie s internal auditors: reportin" to the audit co##ittee as #erel* a %or#alit* to satis%* corporate "o,ernance re;uire#ents! 3ince so#e #ana"ers belie,e that internal auditors are supposed to or) %or the#, the* induce the auditors to en"a"e in #ana"e#ent %unctions! 7t is in this area that the i#pair#ent o% the internal audit %unction:s independence poses a threat! 8an 2ansber"he =10> e6pressed the dile##a throu"h an ar"u#ent that the internal audit depart#ent is re;uired to add ,alue to #ana"e#ent operations, hile at the sa#e ti#e not beco#e its ser,ant, and dependabl* report on the status to the board or so#e other e;ui,alent "o,ernin" bod*! .he independence o% the internal audit %unction is also a%%ected ne"ati,el* b* the possibilit* %or #ana"e#ent to in%luence the bud"et o% internal audit %unction! <urther hen senior #ana"e#ent beco#es too hea,il* in,ol,ed in in%luencin" the internal audit plannin", this act poses a potential threat to the independence o% the internal audit %unction =11>! 7nternal auditors ho en"a"e in #ana"e#ent practices are

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1harles 2uandaru /a#au et al.:

56plorin" 7nternal -uditor 7ndependence Moti,ators: /en*an Perspecti,e

;ualit* and hence are li)el* to be #ore independent =21>! -ccordin" to Gass et: al =22>, 1HA/ 200& asserts that internal auditors need to possess increasin" le,els o% critical thin)in", anal*sis, decision #a)in", and lo"ic in order %or the# to handle the e6tended role o% internal audit! .his is an addition to the re;uire#ent o% standard nu#ber 1210! 7nternal auditors, ho lac) the necessar* s)ills, #a* lac) ob$ecti,it* in their pro%essional $ud"#ent hence ne"ati,el* a%%ectin" the internal audit independence! 2.4. Conflict of Interest 3tandard nu#ber 1120 re;uires that internal auditors #ust ha,e an i#partial, unbiased attitude and a,oid an* con%lict o% interest! .he standard %urther e6plains con%lict o% interest as a situation in hich an internal auditor, ho is in a position o% trust, has a co#petin" pro%essional or personal interest! 3uch co#petin" interests can #a)e it di%%icult to %ul%ill his or her duties i#partiall* =1>! - nu#ber o% e#plo*ees use the internal audit %unction as a steppin" stone to other hi"her positions =11>; this #a* pose a ris) o% con%lict o% interest and hence i#pair audit independence! -ccordin" to 1hristopher and Ieun" =11> so#e o% the threats to internal audit independence arisin" %ro# con%lict o% interest includes, a situations here the chie% e6ecuti,e o%%icer (15A) or chie% %inance o%%icer (1<A) appro,e the internal audit:s bud"et and e,en pro,ide input %or the internal audit plan; also here the #ana"e#ent considers the internal auditor as a ?partner@; and here 1-5s do not report %unctionall* to the audit co##ittee! 2. . !esearc" #a$ Go ard and Jeiss =23> obser,ed that internal auditor:s lac) o% true independence %ro# #ana"e#ent is the #ain reason h* the internal audit pro%ession does not encoura"e #ana"e#ent, and the board, to rel* on internal auditKs assess#ent o% internal controls! <urther 3te art and 3ubra#ania# =3> concluded that it as clearl* e,ident that internal audit independence and ob$ecti,it* as a rich and %ruit%ul area o% in,esti"ation here researchers can #a)e a ,aluable contribution to the on-"oin" de,elop#ent o% the pro%ession! 3alehi and -9ar* =24> as ere o% the opinion that the pro,ision o% non-audit ser,ices a#on" other issues caused the auditors not to produce a %air report! .he* there%ore concluded that ?auditor independence is a )e* ele#ent o% the audit e6pectation "ap@ #eanin" that auditors ho are independent helps in reducin" the audit e6pectation "ap! 7t is in line ith this and the re,ie o% the literature that this stud* see)s to #a)e a contribution on the status o% internal audit independence in /en*a!

throu"h %aceboo) "roups such as accountants in /en*a and accountants on %aceboo)! .his ;uestionnaire:s reliabilit* as tested usin" 1ronbach:s a coe%%icient and as deter#ined to be 0!E37 su""estin" an e6cellent internal reliabilit* o% the ;uestionnaire accordin" to /line =2B>! .his ;uestionnaire as used to carr* out a re"ression anal*sis on the #oti,ators o% internal audit independence in /en*a! .he ;uestionnaire as desi"ned based on the Ii)ert scale #odel ith %our choices; ?stron"l* a"ree@, ?a"ree@, ?disa"ree@, ?stron"l* disa"ree@ (B) represents stron"l* a"ree and (1) represents stron"l* disa"ree! - total o% 21 ;uestionnaires ere %ull* %illed and returned and hence the* %or# the basis o% results and discussions belo !

)" &esults and *iscussions

- #ultiple re"ression anal*sis as carried out on the %our independent ,ariables (internal auditor:s in,ol,e#ent in #ana"e#ent, audit co##ittees e%%ecti,eness, auditor s)ills and con%lict o% interest) a"ainst one dependent ,ariable (auditor:s independence) and the results ere as sho n in the table belo :
%able 1. Multiple linear regression results table Coe++icients 7ntercept L1 L2 L3 L4 3!04' -1!121 1!4'4 0!&0E -0!1'3 Standard Error 0!7'0 0!1'' 0!17' 0!1'B 0!14' t Stat 3!E0& -B!E32 '!343 3!2EE -1!24 ,-'alue 0!0012B7 0!0000211 0!00000032 0!004B2& 0!230'71

Jhere: L 1: internal auditor:s in,ol,e#ent in #ana"e#ent L 2: audit co##ittees e%%ecti,eness L 3: auditor s)ills L 4: con%lict o% interest

.able 7 abo,e clearl* sho s that internal auditor:s in,ol,e#ent in #ana"e#ent, audit co##ittees e%%ecti,eness and auditor s)ills si"ni%icantl* in%luence the internal auditor independence; hile con%lict o% interest is not a si"ni%icant #oti,ator o% auditor independence! Jhen the table is reduced into a re"ression #odel, the %ollo in" ould be the %or#! F M 3!04' N 1!121 L1 O 1!4'4 L2 O 0!&0E L3 2i,en that the ,alues o% L1, L2 and L3 ere 2!43, 2!71 and 3!24 respecti,el*, the le,el o% auditor independence (F) in /en*a is &!32 hich is an e;ui,alent o% a score o% 3!1&! .his indicates that a #a$orit* o% the respondents belo,ed that internal auditors in /en*a ere independent in their or)! .he reliabilit* o% the abo,e #odel is supported b* the %ollo in" -4A8- table
%able 2. ANOVA results table

(" Methodology
.he stud* collected its data usin" a sel%-#ade ;uestionnaire hich as distributed a#on" auditors in /en*a so as to establish the status o% internal auditor:s independence in /en*a! .he ;uestionnaire as distributed

AN./A Ce"ression Cesidual .otal

df 4 1& 20

SS 24!B441B 3!741B& 2'!2'B71

MS &!13&03E 0!233'47

& 2&!23E4E

Significance & 0!0000007444

G0: Celationship bet een Lis and F M 0, i!e! Lis in the e;uation are not a "ood predictor o% F

7nternational (ournal o% 5cono#ics, <inance and Mana"e#ent 3ciences 2014; 2(2): 132-137

13B

.he critical < is esti#ated at 4!E'3 hile the actual < is 2&!23E! .his #eans that since the actual < is #ore than the critical < statistic, null h*pothesis is to be re$ected! .here%ore the Lis in the e;uation are "ood predictors o% F! <urther, the si"ni%icance le,el o% the e;uation is al#ost 9ero hence the e;uation is a ,er* stron" representation o% the actual status that internal auditor:s in,ol,e#ent in #ana"e#ent, audit co##ittees e%%ecti,eness and auditor s)ills are #a$or contributors o% hi"h auditor independence in /en*a! .he %ollo in" table helps to e6plain the indi,idual relationship bet een each o% the independent ,ariable and the dependent ,ariable!
%able 3. H pot!esis "esting for Variables L1 L2 L3 L4 t Stat -B!E32 '!343 3!2EE -1!24 Critical t 2!0'& 2!0'& 2!0'& 2!0'& ,-'alue 0!0000211 0!00000032 0!004B2& 0!230'71 *ecision Ce$ect G0 Ce$ect G0 Ce$ect G0 -ccept G0

.he results on <i"ure 1 abo,e are based on a corroborati,e ;uestion as to hether internal auditor:s in,ol,e#ent in #ana"e#ent acti,ities a%%ects auditor:s pro%essional independence! Most o% the respondents a"reed ith the position hence addin" #ore ei"ht to the re"ression and h*pothesis testin" results! 4.2. Audit Committee Effectiveness .able 3 abo,e clearl* indicates that the null h*pothesis in relation to audit co##ittee:s e%%ecti,eness (L2) as re$ected! .he null h*pothesis is stated here belo ! G0: L2 M 0, i!e! L2 is not a "ood predictor o% F Ce$ectin" null h*pothesis #eans that internal audit independence in /en*a is directl* a%%ected b* the e%%ecti,eness o% audit co##ittees! .he hi"her the de"ree o% e%%ecti,eness o% audit co##ittees; the hi"her the auditor:s independence le,el, and ,ice ,ersa! .his %indin" a"rees ith #ost o% the studies that ha,e been carried out =13> =14> =1B>! 7t also e#phasi9es on the i#portance o% audit co##ittees in enhancin" the internal auditor:s independence! .he internal auditors ho report to audit co##ittees %unctionall* are li)el* to be independent a %act that #ost respondents a"reed to as indicated in <i"! 2 belo !

Jhere: L 1: internal auditor:s in,ol,e#ent in #ana"e#ent L 2: audit co##ittees e%%ecti,eness L 3: auditor s)ills L 4: con%lict o% interest

5ach o% the ,ariables is e6plained in the %ollo in" subtopics 4.1. Involvement by Internal Auditors in Management Activities .able 3 abo,e clearl* indicates that the null h*pothesis in relation to internal auditor:s in,ol,e#ent in #ana"e#ent (L1) as re$ected! .he null h*pothesis is stated here belo ! G0: L1 M 0, i!e! L1 is not a "ood predictor o% F Ce$ectin" null h*pothesis i#plies that internal audit independence in /en*a is ne"ati,el* a%%ected b* the internal auditor:s in,ol,e#ent in the #ana"e#ent! .he #ore the internal auditors en"a"e in #ana"e#ent a%%airs, the less independent the* beco#e and ,ice ,ersa! .his %indin" a"rees ith the obser,ation #ade b* 1hristopher et: al =11>! 7nternal auditors should there%ore re%rain the#sel,es %ro# o,er en"a"in" in #ana"e#ent acti,ities and restrict the#sel,es to assurance and consultanc* ser,ices that adds ,alue to ris) #ana"e#ent and "o,ernance processes! .his ill "reatl* enhance their audit independence!

&igure 2. #ar grap! on t!e audit committee$s effecti%eness &Effecti%e audit committees en!ances internal audit independence'

.he results o% %i" 2 abo,e are based on a corroborati,e ;uestion as to hether an e%%ecti,e audit co##ittee enhances internal audit independence! Most o% the respondents a"reed ith the position hence addin" #ore ei"ht to the re"ression and h*pothesis testin" results! 4.3. Auditor Skills .he results sho n in .able 3 points out that the null h*pothesis in relation to auditor s)ills (L3) as re$ected! .he null h*pothesis is stated here belo ! G0: L3 M 0, i!e! L3 is not a "ood predictor o% F Ce$ectin" null h*pothesis i#plies that auditor s)ills directl* a%%ect the internal auditor:s independence! .he hi"her the le,el o% auditor s)ills; the hi"her the auditor:s independence le,el, and ,ice ,ersa! .he internal auditors and internal audit depart#ents should stri,e to ac;uire the

&igure 1. #ar grap! on t!e internal auditor$s in%ol%ement in management acti%ities &Internal auditor$s in%ol%ement in management affects t!eir professional independence'

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1harles 2uandaru /a#au et al.:

56plorin" 7nternal -uditor 7ndependence Moti,ators: /en*an Perspecti,e

s)ills hi"hli"hted b* Gass et: al =22> and 1HA/ 200& hich includes critical thin)in", anal*sis, decision #a)in", and lo"ic in order %or the# to handle the e6tended role o% internal audit independentl*! .he internal auditors ho are ell s)illed are li)el* to be independent a %act that #ost respondents a"reed to as indicated in <i"! 3 belo !

.he results on <i"! 4 abo,e are based on a corroborati,e ;uestion as to hether con%lict o% interest b* internal auditors has an e%%ect on their independence! Most o% the respondents a"reed ith the position hence addin" so#e ei"ht to the re"ression and h*pothesis testin" results!

0" Conclusion
.he institute o% internal auditors throu"h 7PP< standard nu#ber 1100 re;uires that an internal audit acti,it* be independent and ob$ecti,e in per%or#in" its duties! .he internal audit acti,it* should also be %ree %ro# inter%erence in deter#inin" the scope o% internal auditin", per%or#in" or), and co##unicatin" results! .he researchers obser,ed that the le,el o% in,ol,e#ent b* the internal auditors in the #ana"e#ent acti,ities si"ni%icantl* a%%ects their pro%essional independence! .he stud* also obser,ed that audit co##ittees e%%ecti,eness also pla*s a si"ni%icant role in enhancin" audit independence! Ar"ani9ations #a* there%ore consider buildin" capacit* o% the audit co##ittees so as to i#pro,e internal audit independence! .he stud* %urther %ound out that there is a statisticall* si"ni%icant causal relationship bet een the le,el o% internal auditor:s s)ills and auditor independence in /en*a! Go e,er the stud* did not establish a si"ni%icant e%%ect o% con%lict o% interest b* internal auditors on the auditor independence despite a #a$orit* o% the respondents a%%ir#in" that indeed it actuall* ha,e an e%%ect! .his stud* ould there%ore reco##end %urther studies on the issue o% con%lict o% interest b* internal auditors especiall* in relation to its in%luence on internal audit independence!

&igure 3. #ar grap! on t!e internal auditor s(ills &S(illed internal auditors are li(el to be more independent'

.he results on <i"! 3 abo,e are based on a corroborati,e ;uestion as to hether s)illed internal auditors are li)el* to be #ore independent! Most o% the respondents a"reed ith the position hence addin" #ore ei"ht to the re"ression and h*pothesis testin" results! 4.4. Conflict of Interest .he results sho n in .able 3 points out that the null h*pothesis in relation to con%lict o% interest b* internal auditors (L4) as not re$ected! .he null h*pothesis is stated here belo ! G0: L4 M 0, i!e! L3 is not a "ood predictor o% F <ailin" to re$ect the null h*pothesis #eans that con%lict o% interests b* internal auditors does not ha,e a si"ni%icant a%%ect the internal auditor:s independence! .he data anal*sis depicted an in,erses relationship bet een con%lict o% interest and auditor independence! Go e,er the in,erse relationship is not statisticall* si"ni%icant! .he h*pothesis testin" results con%licts ith the corroborati,e ;uestion here #ost respondents a"reed that con%lict o% interest a%%ects auditor:s independence to as indicated in <i"! 4 belo !

&e+erences
=1> =2> .he 7nstitute o% 7nternal -uditors, .he Pro%essional Practices <ra#e or)! <lorida, +3-: -lta#onte 3prin"s, 2004! 8anasco, Cocco C!, 1li%%ord C! 3)ousen, and I! Co"er 3anta"ato! P-uditor independence: an international perspecti,e!P Mana"erial -uditin" (ournal 12!E (1EE7): 4E'-B0B! 3te art, (enn*, and 4a,a 3ubra#ania#! P7nternal audit independence and ob$ecti,it*: e#er"in" research opportunities!P Mana"erial auditin" $ournal 2B!4 (2010): 32'-3&0! An"eri, 3! 4!, 1! A)io"a, and D! /! A) ena! P-n -ssess#ent o% the 5%%ecti,eness o% 7nternal -udit 3*ste#s in the Mana"e#ent o% Decentrali9ed <unds in /en*a: - 3tud* o% Iocal -uthorit* .rans%er <und 7n /isii Municipal 1ouncil!P 3cienti%ic 1on%erence Proceedin"s! 2013! Cono, 5! (200&)! 5%%ecti,eness o% the internal control s*ste# in #ana"e#ent o% %inances in public uni,ersities in /en*a! #asters pro$ect sub#itted to 5"erton +ni,ersit*! A*u"i, I! 4! (200B)! <iscal Decentrali9ation in /en*a: the case stud* o% Iocal -uthorit* .rans%er <und! - discussion paper do nloaded %ro# http:// !)en*a"raner*!or!)e/QpM/12E on 23/03/2010

=3>

=4>

=B>

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&igure 4. #ar grap! on t!e conflict of interest &)onflict of interest b internal auditors affects t!eir independence'

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137

=7>

Mihret, Dessale"n 2etie, and -dera$e Jondi# Fis#a ! P7nternal audit e%%ecti,eness: an 5thiopian public sector case stud*!P Mana"erial -uditin" (ournal 22!B (2007): 470-4'4! -da#s, Michael H! P-"enc* theor* and the internal audit!P Mana"erial -uditin" (ournal E!' (1EE4): '-12! Drent, D! (2002), ?.he duest %or increased rele,ance: internal auditors ho success%ull* co##unicate and balance their needs and those o% their clients can increase their rele,ance to the or"anisation@, 7nternal -uditor, 8ol! BE 4o! 1, pp! 4E-B4!

-uditin", 8ol! 7 4o! 3, pp! 2&3-7'! =17> Ca"hunandan, /!C!, Cead, J!(! and Ca#a, D!8! (2001), ?-udit co##ittee co#position, "ra* directors, and interactions ith internal auditin"@, -ccountin" Gori9ons, 8ol! 1B 4o! 2, pp! 10B-1'! =1'> 3chneider, -! (2010)! -33533M54. A< 74.5C4-I -+D7.742 HF -+D7. 1AMM7..553! -cade#* o% -ccountin" R <inancial 3tudies (ournal, 14(2)! =1E> /a#au, 1! 2!, R /ariu)i, 3! 4! (2012)! <actors 7n%luencin" 3a#ple 3i9e %or 7nternal -udit 5,idence 1ollection in the Public 3ector in /en*a! 7nternational (ournal o% -d,ances in Mana"e#ent and 5cono#ics, 1(2), 42-4E! =20> 3eli#, 2! and Fianna)as, -! (2000), ?Autsourcin" the internal audit %unction: a sur,e* o% the +/ public and pri,ate sectors@, 7nternational (ournal o% -uditin", 8ol! 4, pp! 213-22&! =21> Hichan"a, J! A!, R /a#au, 1! 2! (2012)! - stud* to e6plore internal auditors: co#pliance ith Tualit* -ssurance 3tandards: - case o% state o ned corporations in /en*a! 7nternational (ournal o% Cesearch 3tudies in Mana"e#ent, 1(1)! =22> Gass, 3usan, Moha##ad (! -bdol#oha##adi, and Priscilla Hurnab*! P.he -#ericas literature re,ie on internal auditin"!P Mana"erial -uditin" (ournal 21!' (200&): '3B-'44! =23> Go ard, (ohn, and Da,id D! Jeiss! P.rue independence!P 7nternal -uditor Act! 200B: 13! =24> 3alehi, M!, Mansouri, -!, and -9ar*, S! (200E) ?7ndependence and -udit 56pectation 2ap: 5#pirical 5,idence %ro# 7ran@, 7nternational (ournal o% 5cono#ic and <inance! 1, 1&B-174! =2B> /line, P! (2000)! .he handboo) o% ps*cholo"ical testin" (2nd ed!)! Iondon: Coutled"e

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=10> 8an 2ansber"he, 1!4! (200B), 7nternal -udit: <indin" 7ts Place in Public <inance Mana"e#ent, .he 7nternational Han) %or Ceconstruction and De,elop#ent, .he Jorld Han), Jashin"ton, D1 =11> 1hristopher, (!, 3arens, 2!, R Ieun", P! (200E)! - critical anal*sis o% the independence o% the internal audit %unction: e,idence %ro# -ustralia! -ccountin", -uditin" R -ccountabilit* (ournal, 22(2), 200-220! =12> 8erschoor, 1! 1! (200')! -udit co##ittee essentials! Jile*! co#! =13> Shan", Fan, (ian Shou, and 4an Shou! P-udit co##ittee ;ualit*, auditor independence, and internal control ea)nesses!P (ournal o% accountin" and public polic* 2&!3 (2007): 300-327! =14> 2ood in, (! and Feo, .!F!, ?. o %actors a%%ectin" internal audit independence and ob$ecti,it*: e,idence %ro# 3in"apore@, 7nternational (ournal o% -uditin", B! 2 (2001): 107-2B! =1B> .urle*, 3! and Sa#an, M!, ?.he corporate "o,ernance e%%ects o% audit co##ittees@, (ournal o% Mana"e#ent and 2o,ernance, '! 3 (2004): 30B-32! =1&> 2ood in, (! (2003), ?.he relationship bet een the audit co##ittee and the internal audit %unction N e,idence %ro# -ustralia and 4e Sealand@, 7nternational (ournal o%