Institutional Theory on Internal Audit Effectiveness The Case of India

Abstract

The need and importance of internal auditing in Indian listed companies is increasing because of strengthening of corporate governance practices by regulatory bodies and the Indian market environment is becoming more competitive. This study attempts to determine some of the critical factors that affect the effectiveness of internal auditing in Indian listed companies. A final sample of 252 Nifty companies was drawn. We mailed questionnaires to the Head of Internal Audit department, Chief of Accounts and Chief Executive Officers of the company. The overall, response rate was 29.4%. Companies represented manufacturing, information technology, retail, banking and financial services. Using multiple regression technique, the study findings reveal that the factors that affect the effectiveness of internal auditing are ‘competency of internal audit staff’ and ‘interaction of internal auditing with audit committee’. Institutional theory best explains the effectiveness of internal auditing in Indian context. The study encourages auditing professionals to develop their core competencies for delivering their services efficiently and a continuous interaction with audit committee members will help them to be focused both on the organizational performance by improving the IA effectiveness. The implication of these findings for the practice and theory and direction for future research are also provided.