Quality of financial reporting as a measure of internal audit effectiveness a study of Irish non-financial PLCs

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Wozniak, Tomasz
Issue Date
MBA in Finance
Dublin Business School
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Ability to demonstrate Internal Audit’s capability to fulfil its role in the organisation is crucial in defining its future role and significance. This study investigates the relationship between the Internal Audit Function and Quality of Financial Reporting. Using a pioneering research design it shows that a positive relationship between the presence of Internal Audit Function and Accruals Quality (a proxy for Quality of Financial Reporting) exists. Results indicate that outsourcing negatively affects Accruals Quality however the company size is an important factor in both cases. The study also explores the state of Internal Audit among non-financial PLCs in Ireland and reveals that adoption of the Internal Audit Function is not universal and its presence strongly related to company size. Internal Audit departments concentrate on the assurance function, widely implement Internal Audit charter and functional reporting to the Audit Committee. Internal Audit outsourcing is more common in mid-size companies and possibly a transition stage before introducing an in-house department.