Assessing the Effect of Corporate Governance on Independence of Internal Audit Function, A Case Study Based on Private Commercial Banks of Ethiopia

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Date

2015-06

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Addis Ababa University

Abstract

The concept of internal audit independence has not been reviewed in the past more so among commercial banks. Therefore, this study has sought to establish how the independence of internal audit is affected by various corporate governance factors among commercial banks in Ethiopia. Data was collected using structured questionnaires distributed to all internal audit department managers, heads of audit and inspection division and risk and compliance officers/managers of the 16 private commercial banks in Ethiopia. Data collected was analyzed by descriptive statistics aided by SPSS version 20 data analysis tool. A regression model was then used to analyze the relationship between internal audit independence and level of corporate governance factors within a test of significance of 95% confidence level. The study revealed that there is positive linear relationship between independence of Internal audit function and the corporate governance factors; corporate governance setting (CGS, senior management support (SMS), Effectiveness of audit committee (EAC)) and Perception of Internal audit independence (POI) among private commercial banks in Ethiopia. From the findings, the study recommends that private bank executives and board of directors to carefully consider the direction and effect of corporate governance factors on independence of internal audit function. Management of private commercial banks should also update themselves with the corporate governance factors that affect independence of internal audit function to get best /value adding service out of their banks’ internal audit function. KEY WORDS: corporate governance, senior management, independence, internal audit, perception, audit committee effectiveness.

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Keywords

corporate governance, senior management, independence, internal audit, perception, audit committee effectiveness

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