The importance of the supportive control environment for internal audit effectiveness – the case of Croatian companies

Figures & data

Table 1. Reliability of measurement scale for perceived internal audit effectiveness.

Scale^a	Cronbach’s α	Number of variables
Internal audit effectiveness (overall) - perceived	0.885	15
IA_effect (M1 – M10)	0.879	10
IA_contrib (M11 – M15)	0.703	5

^a On the sample of managers and members of the Audit Committee.

Source: Research results.

Table 2. The descriptive statistics of the degree of accepted internal audit recommendations.

The percentage of accepted recommendations (corrective action) by the management on an annual basis	n	%
<20%	3	5.7
20% < n < 50%	5	9.4
50% < n < 80%	3	5.7
>80%	42	79.2
Total	53	100.0

Source: Research results.

Table 3. Reliability of measurement scale for supportive control environment.

Scale^a	Cronbach’s α	Number of variables
Supportive control environment – (overall)	0.902	13
Supportive control environment 1 (A1 – A6)	0.754	6
Supportive control environment 2 (A7 – A13)	0.900	7

Source: Research results.

^a On the sample of internal auditors.

Table 4. Testing differences among average grades for supporting control environment considering the internal audit effectiveness.

	The internal audit effectiveness	N	Mean	Standard deviation	t(df); p
Supporting control environment – Total (A1 – A13)	less effective (<80%)	10	45.90	6.297	–2.353(49); 0.023
	effective (>80%)	41	52.68	8.539
Supporting control environment 1 (A1 – A6)	less effective (<80%)	11	22.82	3.488	–1.252(50); 0.216
	effective (>80%)	41	24.39	3.748
Supporting control environment 2 (A7 – A13)	less effective (<80%)	10	22.80	4.104	–2.980(50); 0.004
	effective (>80%)	42	28.21	5.367

Symbols: N – number of respondents; t_(df) – statistic t together with an associated degrees-of-freedom (df), p – calculated probability.

Source: Research results.

Table 5. Coefficients of correlation between variables supporting control environment and the perceived internal audit effectiveness.

		Supporting control environment (Total)	Supporting control environment 1	Supporting control environment 2
The perceived internal audit effectiveness (M)	r	0.546(**)	0.343	0.581(**)
	p	0.001	0.059	0.001
	N	31	31	31
IA effect	r	0.491(**)	0.276	0.541(**)
	p	0.005	0.133	0.002
	N	31	31	31
IA contrib.	r	0.471(**)	0.337	0.478(**)
	p	0.007	0.059	0.006
	N	32	32	32
The perceived usefulness (M16)	r	0.406(*)	0.205	0.460(**)
	p	0.021	0.260	0.008
	N	32	32	32

** The correlation is statistically significant at 1% of the risk (two-way testing).

* The correlation is statistically significant at 5% of the risk (two-way testing).

Symbols: N – number of respondents; r – correlation coefficient; p – calculated probability.

Source: Research results.

Table 6. Results of Fisher’s exact test of the dichotomous independent variable supporting control environment.

Variable		The internal audit effectiveness				Total		p*
		Less effective (<80%)		Effective (>80%)
		N	%	N	%	N	%
Supporting control environment	0	7	28.0	18	72.0	25	100.0	0,173
	1	3	11.5	23	88.5	26	100.0
	Total	10	19.6	41	80.4	51	100.0

^* Fisher’s exact test.

Symbols: N – number of respondents; p – calculated probability.

Source: Research results.

Table 7. Results of bivariate binary logistic regression for the dichotomous independent variable supporting control environment considering the internal audit effectiveness.

Predictor	OR (95% I.C. for OR)	p
Supporting control environment	2.981 (0.674 – 13.183)	0.150

Symbols: OR = odds ratio.

95% I.C. for OR = 95% confidence interval for odds ratio.

p – calculated probability.

Source: Research results.

Table

	Statements:	Measurement scale
Perceived internal audit effectiveness	Attributes of effective internal audit (IA_effect): • Internal audit has an adequate knowledge of the company operations (M1) • The objectives of internal audit in line with corporate objectives and needs of the internal audit customers (M2) • The organisational position of the internal audit department enables its activity without restrictions (M3) • The scope of internal audit activities in the company fully meets the needs of management (M4) • Methodology used for internal audit planning allows the selection of areas that are important for the company (M5) • The audit objectives are always focused on the testing of high-risk areas of the company (M6) • The recommendations of the internal audit are constructive and applicable (M7) • The Chief Audit Executive (Director of Internal Audit) is actively involved in follow up of the internal audit results and the implementation of recommendations (M8) • Internal auditing provides appropriate assistance in the implementation of the recommendations, if required (M9) • Interaction with the internal audit department and the Chief Audit Executive (Director of Internal Audit) is adequate (M10)	Lickert scale (1 – completely disagree; 5 – completely agree)
	The contribution of internal audit to the company performance (IA_contrib): • The recommendations of the internal audit have a major impact on the improvement of business processes (M11) • The recommendations of the internal audit have a major impact on the improvement of governing process (M12) • Improvements in the area of internal control are a direct consequence of the internal audit activity(M13) • The information we get from the internal audit department are valuable input into the managerial decision-making process (M14) • In the managerial decision-making process management takes into account the recommendations of the internal audit (where possible) (M15) • Internal audit department provides benefits that I expect from this department (M16) (Statements were intended for management and members of the Audit Committee and all contribute the same to the final score.)

Table

	Statements	Measurement scale
Supportive Control Environment	Supporting control environment 1In your company: • There is a code of ethics / code of conduct (A1) • Management has a low tolerance for violation of the provisions of the code of ethics/code of conduct (A2) • Management has a low tolerance to breaches of regulatory requirements (A3) • Management sets realistic goals against their employees with regard to the financial results (A4) • Management gives more importance to the accuracy of the financial results disclosed in the financial statements of the company, than that they ‘look good’ (A5) • The management communicates with employees at lower levels (open doors policy) (A6)	Lickert scale: (1 – completely disagree; 5 – completely agree)
	Supporting control environment 2In your company: • Management believes that the company internal controls are important (A7) • Management respects functions (departments) that are in the company responsible for the control (A8) • Management timely corrects identified internal controls deficiencies (A9) • Management gives importance to the existence of a general awareness of risk importance at all levels of the company and informing employees about the risk treatment (A10) • The company has a risk management framework that is established through written rules and policies (A11) • The responsibilities related to risk management and internal controls are clearly defined by the management (A12) • Before making important decisions managers use company procedures related to the analysis of associated risks (A13) (Statements were intended for internal auditors and all contribute the same to the final score.)

Table 8. Attributes of the companies from the sample (data from the internal auditor’s questionnaire).

Company is listed on ZSE	N	%	Company size	N	%	Sector	N	%
Yes	21	40.4	Large	47	87.04	Other	22	40.7
No	31	59.6	Medium-sized	7	12.96	Financial sector	32	59.3
Total	52	100.0	Total	54	100.0	Total	54	100.0

ZSE- Zagreb Stock Exchange.

N – Number of companies.

Source: Research results.

Table 9. Industry (respondents’ internal auditors).

Company activity (industry)	Number of companies	%
Financial intermediation	32	59.3
Processing industry	3	5.6
Gas, water and power supply	3	5.6
Construction industry	2	3.7
Retail and wholesale trade	3	5.6
Transport and Storage sector	3	5.6
Other	8	14.8
Total	54	100.0

Source. Research results.

Table 10. Attributes of internal auditors.

Function	Number of companies	%
Chief Audit Executive (Director of Internal Audit)	37	74.0
Senior internal auditors and others	13	26.0
Total	50	100.0

Source: Research results.

Table 11. Attributes if the internal audit departments from the sample (data from the internal auditor’s questionnaire).

In your company internal audit has been established since:	Number of companies	%
Less than one year	3	5.8
1–5 years	11	21.2
5–10 years	10	19.2
10–15 years	15	28.8
More than 15 years	13	25.0
Total	52	100.0

Source: Research results.

Table 12. Number of staff in the internal audit departments (data from the internal auditor’s questionnaire).

Number of staff in the internal audit departments	Number of companies	%	Valid percentage	Cumulative percentage
1	19	35.2	35.8	35.8
2	9	16.7	17.0	52.8
3	3	5.6	5.7	58.5
4	4	7.4	7.5	66.0
5	2	3.7	3.8	69.8
6	1	1.9	1.9	71.7
7	1	1.9	1.9	73.6
8	1	1.9	1.9	75.5
10	2	3.7	3.8	79.2
11	1	1.9	1.9	81.1
14	4	7.4	7.5	88.7
15	4	7.4	7.5	96.2
33	1	1.9	1.9	98.1
38	1	1.9	1.9	100.0
Total	53	98.1	100.0
Missing	1	1.9
Total	54	100.0

Average	N	sd
5,87	53	7.669

Source: Research results.

Table 13. Attributes of the companies from the sample (data from the internal auditors’ stakeholders questionnaire).

Company listed on ZSE	N	%	Company size	N	%	Sector	N	%
Yes	14	43.75	Large	26	81.25	Other	16	50
No	18	56.25	Medium sized	6	18.75	Financial Sector	16	50
Total	32	100	Total	32	100	Total	32	100

ZSE – Zagreb Stock Exchange.

N – Number of companies.

Source: Research results.

Table 14. Company industry (data from the internal auditors’ stakeholders’ questionnaire).

Company activity (Industry)	Number of companies	%
Financial intermediation	16	50
Processing industry	4	12.5
Gas, water and power supply	2	6.3
Retail and wholesale trade	1	3.1
Transport and storage sector	6	18.8
Other	3	9.4
Total	32	100.0

Source: Research results.

Table 15. Attributes of the internal audit stakeholders from the sample.

Function	N	%
Chairman of the audit committee	1	3.13
Member of the audit committee	4	12.50
Chairman of the board	1	3.13
Board member	11	34.38
Financial director	4	12.50
Others (sector directors)	11	34.38
Total	32	100.0

N – Number of companies.

Source: Research results.